Gold-Buying Season in the East
Are Gold Bugs Eyeing the October 28 FOMC Meeting?
Which is the dominant factor?
Gold is losing its luster due to the potential Federal Reserve rate increase, as the interest rate is an important factor driving gold’s price. Another crucial element that could plausibly affect the yellow metal is its demand from eastern countries India and China.
The recent rise and fall in precious metal prices may be the result of gold trying to strike a balance between demands from the east and the potential rise of US interest rates. Which of these two is the dominant factor driving gold prices? Experts may suggest interest rates, but let’s take a look at the other option.
Together, India and China account for half the world’s gold demand. The end of the third quarter and the beginning of the fourth quarter is usually the peak season for gold-buying in India and China. Gold-buying kicks off prior to the national holidays in China, during Golden Week for the Chinese New Year.
October also marks the beginning of the festive season in India, which people consider to be a great time to buy precious metals such as gold and silver.
Weak Indian demand
According to a Commerzbank report, exports of gold from Switzerland to Hong Kong rose to 59.8 metric tons in September, 65% higher than in August and the highest monthly volume in one-and-a-half years. Swiss exports to India plunged by two-thirds to just 23 tons during the same period.
Indian gold prices are quoted at a discount of $2–$4 per ounce to gold’s international prices. Conversely, gold has been trading at a premium of $2–$5 per ounce in China since September.
Falling demands in India are mostly due to the patchy monsoon that the country has seen in 2015. Rural yellow metal demand consists of about two-thirds of total demand from India. With poor rains, the rural population that is primarily into farming has less cash at its disposal, leading to falling demand.
China, however, looks like it is compensating for the weaker Indian demand. Demand in both countries could also get a boost from the fall in gold prices.
Gold investments that are often affected by the changes in its prices include ETFs such as the SPDR Gold Shares ETF (GLD) and investments in the gold mining stocks. Mining companies such as Yamana Gold (AUY), B2Gold (BTG), and AngloGold Ashanti (AU) usually experience changes in their share prices due to the rise and fall of gold.
These three companies make up 10.2% of the Market Vectors Gold Miners ETF (GDX).
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