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Analyzing the Falling Gold Demands from the East

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Prices rebound

Gold and other precious metals have fallen in the last trading year. Gold futures on COMEX, a division of NYMEX, have fallen nearly 2.80%. However, the prices are recovering from the July rout. Gold rose due to the recent FOMC (Federal Open Market Committee) policy setting meeting held during mid-September. Gold’s rise after the meeting was backed by the interest rate falling to the near-zero mark. With lower interest rates, investors may not feel the urge to switch their money from non-interest bearing gold to interest-bearing Treasuries.

The above chart shows a volume price study for gold during the last trading month. After rising close to 3.20% after the Fed’s meeting, gold prices fell to ~$1,120 per ounce.

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Tracking leveraged ETFs and miners

Precious metals’ leveraged ETF investments like the Direxion Daily Jr. Bull Gold 3X (JNUG) and the Direxion Daily Gold Miners ETF (NUGT) both saw positive returns on a 30-day trailing basis. They rose 13% and 3.80%, respectively. Mining equities that have lost their shine as we saw falling bullion prices include Pan American Silver (PAAS), Sibanye Gold (SBGL), and Kinross Gold (KGC). Together, these three stocks account for 7% of the price changes in the VanEck Vectors Gold Miners ETF (GDX).

Retreating demands from the East

Gold buying in Asia has been falling. The monsoon in India determines farmers’ gold purchasing power. It accounts for a significant chunk of the demand. Gold demand is damped due to the patchy rains. Chinese buying has eased after the recent surge.

The gold demand in India and China had been rising after the commodity market rout. Recently, the demands are falling. The physical demand determinants in the Eastern countries are mostly determined by the premiums given over the price for the delivery of the metal. With the Indian rupee falling against the US dollar, gold is rather expensive. Now, it takes more rupees to buy the dollar-denominated gold. The premiums for ready delivery saw a fall after the recent stock market turmoil. These premiums on gold are also prevalent in China. Currently, they’re around $4 per ounce. This indicates a moderate level of demand.

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