Gold price continues to slide despite rising demand

Weakening US dollar expected to send price of precious metal higher in second half of year

PUBLISHED : Friday, 15 February, 2013, 12:00am
UPDATED : Friday, 15 February, 2013, 5:20am

The price of gold fell yesterday, the first trading day after the Lunar New Year holiday, continuing the losing streak that started at the beginning of this year.

Gold opened at HK$15,238 per tael, down 2.1 per cent from HK$15,560 on the previous trading day.

In London, spot gold traded at US$1,644.60 an ounce on Wednesday, down nearly 2 per cent this year.

Haywood Cheung Tak-hay, the president of the Chinese Gold & Silver Exchange Society, said he expected gold to trade in a narrow range between US$1,600 and US$1,700 an ounce in the first half.

But the weakening US dollar was likely to send the gold price to as high as US$1,900 an ounce in the second half, Cheung said.

"In light of the quantitative easing policies by governments across the globe, gold and other precious metals would become a more preferable asset class than currencies," he said.

The trading of yuan gold bars, launched by the exchange in October 2011, was in need of a stimulus in Hong Kong, Cheung said.

The yuan gold bar trade in the city is worth 5 billion yuan (HK$6.2 billion) to 6 billion yuan a day, dwarfed by London's trade of 60 billion yuan to 70 billion yuan.

"If Beijing could widen the daily trading band of the yuan, the trading of yuan gold bars will be stimulated," Cheung said.

Gold demand rose 3.8 per cent in the fourth quarter of last year to 1,196 tonnes - a record high for the quarter - from 1,152 tonnes a year earlier, the London-based World Gold Council said yesterday.

Demand was bolstered by Indian consumption during the quarter, which surged 41 per cent year on year and helped reduce the first drop in annual usage in three years. China, which the council said was poised to overtake India as the largest buyer of gold, saw its gold purchases fall 0.5 per cent to 776 tonnes.

The mainland saw a fall in the consumption of gold and jewellery products towards the year-end because of the anti-corruption campaign launched by Vice-President Xi Jinping, analysts said.

Analysts in general are bullish about gold prices. Schroders' commodities and currencies product manager Matthew Michael said gold might test a new record of US$2,000 an ounce this year, after hitting US$1,700 last year.

Investment, including gold bars, coins and exchange-traded products, dropped 8.3 per cent year on year to 424.7 tonnes in the three months ended December, the gold council said. Investment for the full year fell 10 per cent to 1,534.6 tonnes.