Gold has fallen to its lowest level for eleven weeks, sliding as much as 1.7% in trading on Tuesday to a low of $1,264 per ounce.
Strong US economic data — especially manufacturing — and the growing strength of the US dollar are the main reasons for gold’s weakness, but there are also fears that the surge in physical gold demand from Chinese banks may fall, as the banks’ use of gold leasing to circumvent restrictions on new loans could come under closer scrutiny.
Chinese banks’ gold holdings have risen by 55% to 1,445 tonnes over the last year, according to a recent Bloomberg article — that’s more than the official gold reserves of Russia, Switzerland or China itself, according to the organisation.
As a result, physical gold ETFs fell sharply on Tuesday, with the $33bn SPDR Gold Trust (NYSE: GLD.US) ETF trading down by 1.8% at $121.62 shortly after US markets opened, cutting its gains for the year to date to just 4.7%.
Similarly, the London-listed, Gold Bullion Securities (LSE: GBS) was down by 1.9% at $121.15 on Tuesday afternoon, leaving it just 4.8% higher than at the start of 2014.
Gold mining update
In the mining sector, shares in debt-laden Russian gold miner Petropavlovsk (LSE: POG) put on a spurt to break the 40p barrier for the first time in almost two months, after broker Canaccord Genuity gave the firm a ‘speculative buy’ rating, with a target price of 85p. However, investing in Petropavlovsk continues to carry significant risk, as I explained recently.
There was better news for shareholders of Chaarat Gold Holdings Ltd (LSE: CGH), the Kyrgyz Republic-focused gold developer whose share price has risen by 44% over the last five days. This gain appears to have been triggered by the announcement that two substantial institutional shareholders have purchased shares in the firm, accounting for a total of 26% of the firm.
Earlier this year, Chaarat published an updated Definitive Feasibility Study showing that projected production from its Chaarat Project could be at least 250,000 ounces per year, from a JORC-compliant measured and indicated resource of 3.59 million ounces.