Asian Premiums on Gold Bars Steady, Rising as US Futures Exchange Cuts Margin Costs

Prices to buy wholesale Gold Bars rose into the start of London trade Friday, cutting the week’s losses to 1.9% as European stock markets gave back an early rally and commodities headed for their fourth weekly loss in succession. Asian stock markets crept 0.1% higher from Thursday’s near 5-month low.

Silver Bullion rose above $28.30 per ounce, recovering two-thirds of this week’s 5.5% drop to Wednesday’s low.

“[Mid-week] was bloodshed as panic and fear continue to dominate the market,” said one wholesale Gold Dealer in Singapore in a note. But “while Indian [physical] demand has been lower than normal, overall we continue to see decent buying interest from the rest of Asia,” says today’s note from Standard Bank in London, “especially South East Asia.”

Premiums on Gold Bars traded in Tokyo rose Friday to $1.50 per ounce above the world’s benchmark price – set by quotes for London delivery – “as investors turned from sellers to buyers,” says Reuters. With London prices nearing the weekend at $1560 per ounce, Gold Bar premiums in Hong Kong and Singapore “were steady from last week,” says the newswire.

US Gold Futures in contrast – where speculators have cut their bullish exposure by two-thirds from August 2011’s record – will cost less in margin downpayments starting next Wednesday, the CME trading exchange said yesterday. The second cut to margin requirements since February, the CME’s move cuts the initial margin required to open a 100-ounce gold future to $9,113 – some 5.8% of the June contract’s current value, and down by one-fifth from the record margin requirement reached last summer. “Margin reductions tend to have a less immediate impact on prices than margin hikes,” says ANZ Bank’s commodity desk in a note. “Nevertheless, the reduction is likely to be mildly supportive going forward.”

In exchange-traded funds, Thursday saw the $68 billion SPDR Gold Trust add 2 tonnes to the bullion holdings needed to back its shares. Some 3.8% below its record holding of June 2010, the SPDR remained 12 tonnes lighter for the week at 1270 tonnes. Julius Baer’s Gold ETF – which is one-tenth that size – shed 1.26 tonnes. “Gold’s direction seems to be driven more by the level of market risk aversion and the Euro currently,” says Anne-Laure Tremblay at BNP Paribas, quoted by Reuters.

“Market sentiment on gold is fragile at the moment. A shift to a more accommodative monetary policy stance may be needed to sustain a gold bull rally.”

The European Central Bank will next meet and set interest rates for the Eurozone’s 330-million citizens on 6th June. French government bond yields fell to new record lows as investors pushed prices higher, with 10-year debt offering an annual return of 2.42%. “The current German rate is really low and yield seekers are looking for other opportunities,” reckons bond trader Hajime Nagata at Diam Co., which runs $124 billion in asset and is part of Japan’s second-biggest life insurance group, Dai-ichi.

Noting that the new French government of Socialist leader Francoise Hollande is raising the tax-free ceiling for domestic savings, “The assumption is that this money will be used to purchase French government bonds,” Nagata is quoted by Bloomberg. German 10-year Bund yields today held flat at 1.39% per year. Comparable US debt yields edged down to 1.76%.

The Euro meantime reversed an early rally and fell to a fresh 2-year low at $1.2512. That pushed the price of wholesale Gold Bars for Eurozone buyers back above €40,000 per kilo, unchanged for the week.

“As policy stances in China and Europe at last begin to swing from fine-tuning and austerity towards more explicitly pro-growth policies, this marks a potentially significant shift for commodity markets, in particular industrial metals,” says the latest Commodities Weekly from French investment and bullion bank Natixis.

But for gold – and noting China’s record private demand for Gold Bars, coins and jewelry reported in the first 3 months of this year – “real interest rates [on bank deposits] have already moved back into positive territory,” says the report. “If the equity market begins to anticipate a period of stronger growth, this may absorb more Chinese savings that had previously been moving into gold.”

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