BULLION LATEST – Gold faces lack of demand; silver slumps to year-low

Jun 2, 2014 - 4:05 AM GMT

Gold and silver prices slid further since Friday, as the former faces a lack of demand with better risk sentiments and silver dragged down by gold to a 2014-low.

Gold fell for four days in a row after its 2 percent decline seen on 27 May, as Friday saw prices dropping another $5 to $1,251 and this morning prices are last quoted at $1,248 per ounce. Silver, currently bid at $18.76, fell to its lowest this year on Friday at $18.635 per ounce.

The decline in both metals were triggered by a better Chicago PMI released last Friday with the number coming in at 65.5 versus the expected 60.8.

For the week ahead, a policy decision by the ECB is keenly awaited as well, with markets expecting an announcement of monetary easing which could push the dollar higher against the Eurodollar and subsequently weigh on the yellow metal.

While lower spot prices will usually encourage demand in the physical markets, some analysts think that there could be a lack of fundamental support from this aspect for now.

A report from UBS said that a weak monsoon season in India could adversely affect the price of gold in the months ahead, as this could lead to poorer yield for farmers and affect their purchasing power for gold.

“Rural farming areas account for approximately 60 percent of Indian gold buying.  How good or bad the monsoon season is has a direct impact on gold demand and in turn prices,” the report said.

Moreover, a falling rupee is also keeping gold prices high in local currency terms as gold is priced in USD. Hopes that the new government would lower tariffs is seen to have dimmed as well, with no new announcement made at least in the near term.

“Although it is not certain the government will lower the current 10 percent tariff on gold imports, we believe the unpopularity of the tariff combined with the increase in smuggling and the free-market attitude of the new BJP government make it likely the tariff will eventually be lowered. Until then, however, Indian imports may be lacklustre and cannot be expected to support gold,” same analyst James Steel from HSBC Securities.

Platinum was dragged down by gold, although palladium continued to hold its own ground. The latter is now at $834, just $1 from Friday’s close, while platinum fell more than $10 to end Friday at $1,449 per ounce and is now at $1444.