The beginning of March month could bode well for Gold as it is typically a strong month in two of gold's most important physical markets – China and India.
Cumulative data on the two Shanghai Gold Exchange (SGE) gold contracts since 2006 show that volumes usually pick-up towards the end of the first quarter. Indeed March is typically the second-strongest turnover month after January.
China and India have been largest consumers of gold, generating 55 percent of global jewellery demand and 49 percent of global demand, according to World Gold Council.
The demand in China likely reflects some post-Lunar New Year replenishing of stocks after the inventory draws over the holidays. A similar pattern holds for India where volumes normally edge up in March, before surging in April.
[Related -Buffett's Market Indicator Flashes Red, Prepare To Sell]
SGE gold volumes were the highest since late January, at 12,400kgs. Demand for kilobars and coins also emerged out of Europe as well, likely reflecting opportune buying and restocking. Demand was also evident across other Asian centers.Yet, it might take a few more days for physical demand to really come in with full force.
"Our index of physical sales to the country shows that volumes start picking up in March, before peaking April, when the market moves into the wedding season again, which runs through to May," UBS strategist Edel Tully wrote in a note to clients.
Meanwhile, one of the major festivals in India associated with hefty gold purchases, Akshaya Tritiya, falls on April 24 this year.
[Related -PBoC joins other major central banks with unconventional monetary policy action]
"Seasonal elements, however, do not necessarily pan out. While history provides some guidance, there are no guarantees that things will play out as they have in the past," Tully said.
Tully said physical buyers can afford to be a little more patient at this stage as it is still very early in the month and there is plenty of time for the seasonal trend to kick-in.
That prices exhibited a sense of calm after the storm yesterday indicating a positive first step. Trading was range bound and the stability was somewhat restored, but should volatility ease in the coming week, then the necessary preconditions for post-price correction physical buying will be fully in place.
ETF buying was also evident a couple of days ago, with investors adding a hefty 338 thousand ounces (koz) on Wednesday, the largest daily increase to global holdings since late January. The GLD fund accounted for the bulk of ETF flows, having increased by just under 300koz this week.
Gold ETF holdings currently sit at an all-time high of 80.03 million ounces (moz) after about 900koz of additions last month, in line with January inflows. So far this year, investors have increased gold ETF investment by 1.86moz.
Gold starts a new month with the missing ingredients to its February run – physical demand and ETFs – now making their presence known.
Meanwhile, the report from Commodity Futures Trading Commission (CFTC) on trader positions is due later today and would offer some cues over how much longs increased from Feb 21 to Tuesday this week. Tully said given the increase in gold open positions over this period, the data will likely show a similarly strong expansion of gold net longs.
"That doesn't mean that gold is in a comfortable position again. It's not. But the desire to sell in size has gone, for now," Tully added.