Gold: "...While shorts are high on the minds of traders, in Asia and, particularly China, physicial buying continues ahead of Chinese New Year.
But, the run up to this milestone is also expected to add to volatility.
UBS points out that volumes on the Shanghai Gold Exchange have picked up significantly of late, as too have premiums - mostly staying above $20 for the Au9999 contract over the last few weeks.
“The increased activity in China is consistent with typical seasonal patterns, as we head closer to the Chinese New Year at the end of the month. The dip in prices towards the end of 2013 likely encouraged a pick-up in physical buying and therefore a further draw down on existing stocks."
And, while inventory levels are generally considered comfortable, if buying were to pick up, premiums could rise as the window for getting imports into the country in time is narrowing.
“Fresh import licenses are needed for 2014,” UBS explains, “and with the New Year festivities scheduled earlier this year, the time between getting the quotas in place and shipping the metal is limited.”
The fifth factor that is likely to keep market participants guessing is the actions of the Reserve Bank of India.
A number of rumours are circulating about whether or not, or rather, if and when the Indian government will reduce import duties and relax gold import restrictions. Such a move would be positive for gold demand in India and, thus for prices. But, as Steel says, “The return of India as a greater importer would be gold-friendly but it is still not clear when, or even if, the authorities will cut the tariffs on gold. It may also take months for greater physical demand to work thoroughly through the market and support prices.”
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