September 28 2013, 7:30am
Gold ended the week on the up as concerns over another US debt crisis increased and hit both the dollar and equity markets.
Confusion after the US Federal Reserve’s shock decision not to start tapering its bond buying policy was also still apparent.
One Fed regional president said this could mean the start of tapering being put back by just one month, to October, but on Friday another suggested tapering was off the agenda this year.
Charles Evans, president of the Chicago Federal Reserve, said tapering of the US$85bn monthly bond buying programme may not begin until 2014 because the US economy still needs more time to recover.
Added to the growing concerns and frustration over the US debt situation, which could see parts of the US government shut down unless agreement is reached to extend the current debt ceiling by the start of October or Monday.
Spot gold was up to US$1,338 by Friday afternoon, even though demand from physical markets in China and India has been weak recently.
China’s market effectively shuts for a week starting 1 October, while India has been affected by the concerted efforts of its government to stop imports into the country to boost its balance of payments and weak currency.
Retail demand soared when the gold price endured an unprecedented two-day collapse in April, but this could just be the start of a new prolonged surge in retail buying, according to Randall Oliphant, the new chairman of the World Gold Council, the gold industry’s flag waver.
In an interview with metals research group Kitco, Oliphant said the emergence of “real customers” who want to hold onto the gold they buy will help counter the volatile demand of hedge funds and other investors.
In particular, Oliphant highlighted India and China as areas that will continue to see retail demand grow strongly even though they already account for more than half of the consumer gold market.
A growing middle class in both countries will drive this growth, while the unprecedented coin sales in the United States this year have shown the appeal of specific products in certain markets.
Oliphant also expects central banks continue to buy gold as a way to diversify their currency reserves.
Central banks bought the most gold in history in 2012 and although purchases this year are likely to be lower, demand from eastern Europe in particular remains strong.
Central banks added a net 21 tonnes to their reserves in August, figures this week from the IMF revealed.
Russia was the largest direct buyer, adding 13t, with Azerbaijan (3t), Kazakhstan (2.5t) and Ukraine (2.5t) the other major purchasers.
Turkey added the most to its reserves at 23t, but economists said this was due to commercial banks meeting reserve requirements.
August's figures bring the total net purchases of gold by central banks in the first 8 months of the year to 139t,compared to net purchases of around 200t at the same time in 2011 and 2012.
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chow@royalindexuae.com
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