Gold Prices Rise in Europe but Maximum Demand in Asia

The major debt crisis which Europe is currently facing has boosted gold prices in the continent. However, the future of the metal still remains in Asia. The prices of gold fell around 16%, only three weeks after it reached a record making high of $1,920.30 per ounce in September. After this, the gold prices have climbed 12% and are now at almost $1,800.

Gold Prices Influenced by European Crisis

Though it cannot be completely proven that gold prices have been influenced by the ups and downs of the European crisis, its highs and lows (ever since the fall of prices in September) seem to be closely tied to the news headlines at the moment. There has been an increase in gold held by investor favored vehicles like exchange traded futures and funds.

The SPDR Gold Trust’s holdings have risen by nearly 30 tons, with a rise of 2.25 percent; it now amounts to 1,255.7 tons. SPDR is the largest gold ETF in the world. According to U.S Commodity Futures Trading Commission, net long positions and open interest in futures and options of gold have been on the rise in recent weeks.

Net longs had jumped to 148,279 contracts during the week leading up to November 4^th. The prior week saw a 9.4% increase and open interest rose 14.6% to nearly 810,000 contracts. Though these figures cannot match the heights witnessed in August, things have been looking more favorable since the second week of October. The recent gains in Gold were made due to the demand for a safe haven in light of Europe’s financial crisis.

India and China Generating the Most Demand for Gold

The deciding factor in the outlook of gold prices is the demand that is generated by consumers in India and China. According to official data, gold imports from Hong Kong, China, rose 30 % in September compared to August’s rates. The total rose to 57 tons, a record breaking amount from that region.

Based on information revealed by the Gold Exchange in Shanghai, around 40% of China’s gold imports are from Hong Kong. 82% of the demand for gold in the second quarter was for bars, coins and jewelry whereas the ETF had only 5.6%.

India and China account for 55% of the world’s total demand for bars, coins and jewelry. The demand in both countries have been rising quickly with India’s increasing by 38% and China’s by 28%. Data from Hong Kong indicates the Chinese demand was consistent for the third quarter. If India’s demand also remains consistent, the outlook for the world gold demand for the third quarter will remain positive.