U.S. gold stocks rise to 10-month high as physical demand eases

NEW YORK, April 9 Wed Apr 9, 2014 6:59pm EDT

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NEW YORK, April 9 (Reuters) - Gold stocks sitting inside U.S. exchange warehouses have risen to a 10-month high as physical buying has continued to weaken, underscoring concerns about slowing demand from Asia, one of the world's biggest consumers of jewelry and bullion bars.

Market watchers said lower appetite for gold jewelry and investment coins and bars from Chinese physical buyers, combined with recent outflows from gold-backed exchange-traded funds are largely behind the rise in U.S. gold stocks held at CME Group's COMEX warehouses, removing a key support to prices.

"There is certainly no physical tightness in gold," said Bill O'Neill, partner at New Jersey-based commodities investment firm LOGIC Advisors. "Why would you scramble for any physical gold stocks when the market appears to be going nowhere at this point?"

Total U.S. gold stocks, comprised of 100-troy ounce COMEX approved gold bars, have risen to 7.86 million ounces, according to latest exchange data on Monday, their highest level since June 10. GC-STX-COMEX

COMEX gold warehouses were at a record of over 11 million ounces at the end of 2012.

The rise in availability represents the end of the drawdown in stocks seen last year when gold's record two-day drop in prices unleashed years of pent-up buying by Asian investors who spotted a bargain for coins and small bars.

They also bought large gold bars held by bullion banks which turned to the warehouses to meet client demand.

Gold prices fell 3 percent in March for its first monthly drop this year despite heightened geopolitical tensions surrounding Ukraine.

A key factor for lower bullion demand was because banks in China have been importing less gold over the past month as demand waned after the festival season, while cheaper prices at home due to a softer yuan also curbed overseas purchases of the precious metal.

Those factors dragged on Shanghai gold prices, which flipped into a discount to global spot rates in early March, with the spread widening to $10 an ounce at one point from a holiday-demand-driven $20 premium earlier in 2014.

Similarly, the cost of borrowing gold has fallen sharply from a five-year high set in June 2013. The one-month gold lease rate XAU=1MLR-LON was at 0.14 percent on Tuesday, about 50 percent below the level at 0.3 percent set in July last year, the highest since January 2009. (Reporting by Frank Tang; Editing by Tom Brown)

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