Weak Chinese gold demand weighs on gold price

The gold price has dropped to a good $1,280 per troy ounce this morning, which means it now finds itself in the bottom part of the corridor in which it has been trading since mid-May. We could see follow-up selling if it were to fall below this trading band. Unless the recently subdued physical demand in Asia picks up again, the gold price risks falling even further, so attention will be focused on China and India, the two most important countries in terms of demand. According to figures just released by the Census and Statistics Department of the Hong Kong government, China imported a mere 67 tons of gold on balance from the former British crown colony in April. This is 21% down on the month-on-month figure and the lowest monthly import volume since February 2013. Although a low figure had already been anticipated, this is nonetheless likely to further weigh on the gold price in the short term.

In India, the significant improvement in the current account meanwhile signals scope for easing the gold import restrictions that have been in place for a year. According to figures published by the central bank yesterday, India’s current account deficit in the first quarter of 2014 was only 0.2% of GDP, while the deficit for the fiscal year that finished at the end of March was 1.7%. It was therefore considerably lower than the figure of 4.8% in the previous fiscal year, as well as below the government’s 3% target. Narendra Modi, who was sworn in as the country’s new prime minister yesterday, is regarded as economically liberal and had talked ahead of the elections about the possibility of relaxing the restrictions, which would give renewed momentum to Indian gold demand in the second half year.