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Lower gold prices are lifting Indian bullion premiums and Chinese trading activity as North American investors withdraw money from gold funds, BMO Capital Markets said in its latest Precious Metals Monitor.
Indian premiums rose to $15 an oz. for the week ended Oct. 23 from $11 a week earlier, helped by lower prices and buying for the Dussehra festival. On the Shanghai Gold Exchange, weekly volume in a physically settled gold contract reached about 430 tonnes, the highest since April.
The pickup followed a 4% weekly drop in spot gold to the low $4,000s per oz., taking its decline since the start of the year to 7%, BMO said.
“The decline in prices is beginning to draw physical buyers back into the market,” BMO’s research team, including analysts Helen Amos and George Heppel, wrote in a note on Wednesday.
ETF outflows
The buying offers support as financial investors retreat. After three months of net inflows, global gold exchange-traded funds recorded $1.1 billion of net outflows in the week ended Oct. 23, BMO said. North America accounted for $1.7 billion of withdrawals, partly offset by $485 million of European inflows.
Speculative positioning also weakened, with net long futures positions falling to their lowest level since August. BMO said weakness in U.S. equities had encouraged investors to move into government bonds rather than gold, despite escalating Middle East tensions and elevated oil prices. Gold remained under pressure even as bond yields eased.
The Chinese exchange figure measures trading activity rather than retail demand.
Banks diverge
Central banks also diverged. Russia sold 6 tonnes in September, its tenth consecutive month of sales, leaving official holdings at their lowest since 2019, BMO said. BMO linked the selling to mounting fiscal pressure as the war in Ukraine continues.
Kazakhstan signalled plans to reduce gold’s share of its reserves to 75% from 78%, potentially involving sales of about 14 tonnes at unchanged prices, BMO said.
China, meanwhile, increased its gold reserves for a 23rd consecutive month in September. Holdings rose to 77.47 million oz. from 76.73 million oz. in August, BMO said.
Wednesday afternoon’s Federal Reserve decision represents the next test, BMO says. As of Oct. 27, markets assigned less than a 10% chance of another rate increase, down from about 70% a month earlier. BMO also pointed to U.S. economic growth and inflation releases Thursday as drivers of the policy outlook.