China Gold Hoarding Turns More Traders Bullish

Gold traders are the most bullish in two months after mainland Chinaimported the most metal ever from Hong Kong and investors bought U.S. bullion coins at the fastest pace in more than two years. Eighteen of 23 surveyed by Bloomberg expect the metal to gain next week, the highest proportion since Nov. 11. Mainland China imported almost 102.8 metric tons in November, valued at about $5.4 billion, trade data on Jan. 11 showed. The U.S. Mint said it sold 85,500 ounces of American Eagle gold coins in the first 12 days of January. Full-month sales would reach 213,750 ounces at that pace, the most since December 2009.  “The thing that’s caught people’s minds is the massive increase in Chinese buying,” said Ross Norman, chief executive officer of Sharps Pixley Ltd., a brokerage handling physical bullion in London. “Gold has demonstrated time and time again its ability to hold purchasing power. It looks expensive and people talk about bubbles, but it’s not.” China overtook India in the third quarter as the largest gold-jewelry market, according to the World Gold Council. The gain in imports from Hong Kong may be a sign the central bank is adding to reserves, according to Sharps Pixley’s Norman. The People’s Bank of China last made known its gold reserves of 1,054 tons more than two years ago.

Gold is also benefitting from concern the euro zone will tumble back into recession. Germany, the region’s biggest economy, shrank “roughly” 0.25 percent in the fourth quarter from the third, the Federal Statistics Office said Jan. 11. The euro region will contract 0.2 percent this year, compared with growth of 1.6 percent in 2011, the median of 21 economist estimates compiled by Bloomberg show. The rebound in gold is being threatened by a strengthening dollar, which rose to a 15-month high against six major currencies this week. The 30-week correlation coefficient between the greenback and bullion is now at -0.43, data compiled by Bloomberg show, with a figure of -1 meaning the two always move in opposite directions. “Gold was held back toward the end of last year because of dollar strength and people having more confidence in the U.S. economy,” said Carole Ferguson, an analyst at Fairfax IS inLondon. “If people feel the U.S. economy will pull the whole world up a little bit, then you could see gold being very flat to trading down.”

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