Gold market 'hasn't fathomed scale of Chinese buying'

The rally in the gold price lost some steam on Wednesday, after traders booked profits from the metal's strong showing in February and a stronger dollar curbed demand.

In lunchtime trade on the Comex division of the New York Mercantile Exchange, gold futures for April delivery traded at $1,329.80 an ounce, down nearly $13 from yesterday's close.

The metal hit a high of $1,345.60 early on, levels last seen in October. Gold is still up more than 10% in 2014 and a number of analysts have scaled back their bearish predictions for 2014.

Davis Hall, global head of foreign exchange and precious metals advisory at the private unit of Europe's third largest bank Credit Agricole, tells Bloomberg the period of easy money to be made by shorting gold is over thanks to Chinese demand.

"The market hasn't quite fathomed the scale of annual Chinese buying just because of the wealth effect in China over the next coming years. I don’t think gold’s going to come back to $1,000, like many people are suggesting, because I’m seeing what’s happening in China."

However, Hall added that he isn't bullish at current levels: "Gold is an opportunistic trade. I’d much prefer to buy if it comes down to $1,250."

After a dismal 2013 when the metal had the worst price performance in 32 years, the gains year to date have seen large bullion investors playing catch-up.

Net long positions – bets that the price will go up – held by large investors or so-called "managed money" surged 31% last week.

Hedge funds' bullish positions now equal 9.1 million ounces or 258 tonnes, according to Commodity Futures Trading Commission data.

While institutions are trying to get ahead of the curve, investors in exchange traded funds backed by gold, apart from a couple of buying sprees, have largely kept to the sidelines or continued to exit the market.

Total holdings dipped slightly to 1,739.2 tonnes last week, only 3.8 tonnes up from multi-year lows reached earlier in 2014.

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