Chinese Gold Demand Lackluster Despite Lower Prices, Looming New Year Festival
Beijing-China (Feb 9) Despite the recent drop in gold prices, some analysts have noted that demand out of China has been relatively lackluster – especially ahead of what is considered one of the major gold events of the year.
On Feb. 19, China will be celebrating the start of the Lunar New Year. Analysts have noted that this is an important holiday for the gold market as the yellow metal is often given as a traditional gift.
Friday, Comex April gold futures lost more than 2%, dropping below the 200-day moving average and closing the week at a three-week low. Some analysts were expecting the drop to attract some buying during the start of the Asian session this week, but so far the activity has been muted.
Activity Monday has been quiet, with April gold currently trading at $1,240.60 an ounce, up $6.00 on the day.
Alex Thorndike, senior precious metals dealer at MSK Switzerland, described the price action and premiums on the Shanghai Gold Exchange as “decent.” He added that the weak prices could have mixed results for the Chinese markets.
“Physical buying from China should put the brakes on any deeper decline; however, with the China's NY festival holiday rapidly approaching, the sudden abandon of this could incite further liquidation,” he said.
Analysts at UBS said in a report Monday that they have not see any evidence of a significant improvement in appetite for physical gold.
However they added that there is still time for some “last-minute buying” to help support the market.
“This window is narrowing as the seasonally quieter period looms,” they said.
Bernard Dahdah, precious metals analyst at Natixis, agreed that gold demand in China has been soft and he doesn’t expect it to pick up ahead of the looming New Year festivities. He added that for the past year the Chinese government has been trying to crackdown on corruption and as a result, gold is not as popular a gift as it once was.
“Even at lower price levels, I don’t think we are going to see a strong surge in Chinese demand,” he said.