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Gold prices plunged to a more than four-year low Tuesday, as the last pillar of price support — Asian demand — appears to have crumbled.
Prices on the Shanghai Gold Exchange, which usually trade at a premium to gold prices in the west, are trading at a US$1-$2 discount this week. Gold futures on the Comex in New York for December delivery fell 0.2% Tuesday, to close at US$1,167.20 an ounce, marking the fifth straight trading decline and the lowest settlement price since July 28, 2010.
In the past, when the price gap between east and west prices closed, Asian buyers would swoop in and buy the discount. But analysts note this is not happening yet, even as a peak buying season has taken hold in China.
“We’ve not seen any significant physical demand on the back of this (price drop),” said Victor Thianpiriya, analyst at ANZ in Singapore. “That’s a worrying sign for prices as Chinese buying was really the only thing supporting the market on sell-offs last year.”
Gold prices in China typically rise at this time of year and trade at a premium to western prices ahead of the Lunar New Year holiday in February, which sees a large uptick in physical gold buying, particularly jewelry.
The lack of demand is in line with data from the World Gold Council earlier this year that showed total global gold demand in the second quarter fell by 16% to 964 tonnes, as both consumers and investors pared their buying.
The loss of demand from both India and China for jewelry gold has hurt gold prices throughout the year, as both previously helped offset the declining interest in gold from western investors.
The World Gold Council noted that jewelry represented more than half of all demand at 510 tonnes in second the quarter.
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