Gold price back under pressure, physical demand still missing

Otmane El Rhazi from The Bullion Desk.

The gold price was back in negative territory on Wednesday morning, as downward pressure resumed on Asian stock markets.

Spot gold was last at $1,095.00/1,095.80 per ounce, down $7.30 on the previous session and trading near intraday lows of $1,091. In euro-terms, gold has dropped below 1,000 euros per ounce for the first time since early January, it was last at 999 euros per ounce.

“The main driver now seems to be the parlous state of the Chinese stock market which resumed its downward trajectory overnight and as such, impacted most commodities negatively, especially those with industrial links,” Marex Spectron’s David Govett said.

This morning, Hong Kong’s Hang Seng closed down around one percent, Japan’s Nikkei closed down around 1.2 percent while the Shanghai Composite edged marginally higher by 0.2 percent. All major European indexes moved into negative territory.

“I personally believe there are more woes to come from China and as such feel the upside is still limited for the precious complex. There really is, as I said the other day, no good reason for being long of bullion,” Govett added.

Gold outflows continued from ETF funds simultaneously. In funds tracked by FastMarkets, holdings have again set a new 2015 low at 1,573 tonnes.

“As we noted previously, precious metals could fall further should ETF selling continue to gather pace while speculators be inclined to extend their short exposure,” FastMarkets analyst Boris Mikanikrezai said.

Physical demand also remains a problem – as yet, emerging market demand from the likes of India and China has failed to materialise despite the gold price trading at its lowest level in five years.

“Physical demand has showed little sign of picking up. The Shanghai Gold Exchange premium over loco London remained soft over the past 48 hours, at around $2 per ounce,” said ANZ. “Normally, we would expect a decline of such magnitude to elicit fresh demand from China but that seems to be lacking, at least in the onshore premium.”

According to MKS, the SGE premium ticked marginally higher today at $2.50, but remains far short of what many would have expected in light of recent price movements.

There are no numbers of note due today – as such, the dollar is currently unchanged around 1.0937 against the euro.

In other metals, silver was last down four cents at $14.76/14.81 per ounce, while platinum was down $5 at $969/974 and palladium was down $4 at $619/624.

 (Editing by Martin Hayes)

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