Gold dip draws Asian buyers as North American funds lose cash
Lower gold prices boost Indian premiums to $15/oz and increase Chinese trading as North American investors pull out.
Gold prices have declined, prompting increased buying from Asian investors while North American funds are withdrawing money, according to BMO Capital Markets. Indian premiums for gold rose to $15 (C$21) per ounce for the week ending October 23, up from $11 a week earlier. This increase was driven in part by the Dussehra festival and lower prices. In Shanghai, weekly volume in a physically settled gold contract reached 430 tonnes, marking the highest level since April.
This buying activity comes as financial investors are pulling their money out. Global gold exchange-traded funds recorded a net outflow of $1.1 billion in the week ending October 23, with North America accounting for $1.7 billion of the withdrawals. European investors made a $485 million inflow, partly offsetting the U.S. outflows.
Speculative positioning in gold futures weakened as well, with net long positions falling to their lowest level since August. This trend can be attributed to investors moving their money into government bonds instead of gold, despite ongoing geopolitical tensions and high oil prices. Gold continued to face pressure even as bond yields declined.
China's gold exchange data reflects trading activity rather than retail demand. Central banks also showed contrasting trends. Russia sold 6 tonnes of gold in September, marking its tenth consecutive month of sales and the lowest official holdings since 2019. Kazakhstan announced plans to reduce gold's share in its reserves to 75% from 78%, potentially involving sales of about 14 tonnes at current prices.
China, on the other hand, continued to increase its gold reserves, with holdings rising to 77.47 million ounces from 76.73 million ounces in August. The Federal Reserve's decision on interest rates serves as the next test for these trends. As of October 27, markets assigned less than a 10% chance of another rate increase, down from about 70% a month earlier. BMO's economic outlook remains dependent on U.S. economic growth and inflation releases that will be released on Thursday.
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