U.S. gold stocks jump to highest since March 2013 as demand wanes

By Frank Tang

NEW YORK (Reuters) - Gold stocks held at U.S. exchange warehouses have shot to their highest since March 2013 as Asian bullion consumption weakened, keeping a lid on prices.

Total U.S. gold stocks, comprised of 100-troy ounce COMEX approved gold bars in CME Group's five COMEX warehouses in New York, rose to 9.74 million ounces on Monday, the highest since February 2013, latest exchange data shows.

The inflows have accelerated recently, with vaults taking in 1.6 million ounces since Aug. 4, the steepest and most prolonged increase since July 2008.

(For a graphic, click: http://link.reuters.com/qen62w )

"That means not enough demand from the consumers so professional traders are delivering onto the exchange. Also note the big drop in demand from China and India," said Bruce Dunn, a partner at New Jersey-based bullion dealer Auramet.

Analysts said bullion buying in China will be subdued this year as China tightens controls on gold financing deals, while a 10-percent gold import duty in India, historically the world's No. 1 buyer, should continue to curb interest.

On Wednesday, data showed China's economy softened further in July, with the amount of credit and financing flowing into the economy falling to a near six-year low. Analysts attributed the alarming drop to a crackdown in high-risk loans and base metals financing following a fraud scandal at the port of Qingdao.

Local prices have been under pressure. Those on the Shanghai Gold Exchange are at a $2-3 an ounce premium to spot, a far cry from a record high premium of $30-40 seen last year.

Dunn said physical gold products at the U.S. dealer are currently sold at a low-single-digit premium to spot.

Recent outflows in gold held in the world's largest gold-backed exchange-traded funds SPDR Gold Trust also explained the jump in gold stocks, analysts said.

Similarly, the cost of borrowing gold has fallen sharply from a one-year high set in April. The one-month gold lease rate was at 0.10 percent on Wednesday, nearly at one-third of the 0.27 percent seen on April 17 this year.

Spot gold was up 0.3 percent to around $1,312 on Wednesday, after it had posted an over 3 percent three-day rally last week. Bullion is up about 10 percent this year but further gains were capped by its failure to extend safe-haven rallies and fears the Federal Reserve could raise interest rates soon.

(Reporting by Frank Tang; Graphic by Stephen Culp; editing by Andrew Hay)