Global
gold demand in Q3 2012 was 1,084.6 tonnes (t), down 11% from the
record Q3 2011 figure of 1,223.5t. This dip in demand is in
comparison with exceptional demand in Q3 last year. Gold demand
remains resilient. Q3 2012 was above the five year quarterly average
of 984.7t.
Economist
and Hedge Fund Manager Shayne
Heffernan
ofwww.livetradingnews.com
takes a look at Gold
Gold
slid more than 1 percent to a one-week low on Thursday at $1,704.69
an ounce, under pressure from a fresh fall in equity markets, with
momentum picking up as the metal broke through support near $1,715.
Given
the massive money printing to be conducted by the Western Governments
Gold is set for a long term rally, $2500 in 2013 and $5000 is
possible by 2015. Europe, USA and Japan are all printing far to much
money and there will be consequences for the excessive nature of
their policies.
Gold/Silver
52.7789
15-Nov-2012
22:22
Gold/Platinum
1.0924
15-Nov-2012
22:22
Gold/Palladium
2.6897
15-Nov-2012
22:22
In
value terms, gold demand was 14% lower year on year at $57.6bn and
the average gold price of $1,652/oz was down 3% on the record average
Q3 2011 price.
The
key findings from the report are as follows:
Global
investment in ETFs over the quarter was up significantly by 56% on
the previous year.
The
Indian market is showing signs of recovery, up 9% to 223.1t from
204.8t in Q3 2011 following increases in both jewellery and
investment demand. In comparison with Q3 2011 jewellery demand was up
7% to 136.1t and investment demand rose by 12% to 87.0t. Investors
moved into the imitation coin market*, up 59%, whilst jewellery
increased due to re-stocking ahead of the Indian wedding and festival
season. Indians appear to have acclimatised to recent price trends
and have been buying into a rising market.
Based on the long-term historical average ratio, with the price of gold around $1,725, the price of silver should be around $108
Many investors believe gold is a hedge against inflation. And that's true... but that's not the real secret of gold... The real purpose of gold is to hedge against government hubris. I won't get into a political analysis today – you get enough of that in the paper and on TV. But surely you can see that around the world, the role of government is at the top of a huge period of expansion... Around the world, governments have promised their citizens a level of economic security in the form of pensions and health benefits they cannot possibly afford. Today, not very many people understand the fallacy of these actions... or their inevitable collapse. But... over time... more and more people will begin to doubt the solvency of their governments and the practicality of their schemes. If the government can't pay its bills... why am I saving its dollars? If I can't depend on the government to protect me and my family, how will I pay for protection... for health care... for energy...? When people have tangible evidence that something has gone badly wrong with the economy, they begin to hedge against it. They hoard real assets. Rich people hoard gold and silver. Hedging is like buying life insurance. You don't buy life insurance as an investment, except maybe as a tax strategy... but that goes beyond this metaphor. In general terms, you buy insurance so that if something terrible happens, your family will have something to live on. Likewise, you should have some exposure to gold and silver in your portfolio. And no, it's not too late to buy some... What you want in a hedge is a lot different than what you want in an investment. With an investment, you need something that is stable, hopefully provides a yield, and isn't going to drive you crazy with volatility. Silver is none of these things. But it is a perfect hedge because when things go wrong economically – when there's a crisis – the price of silver goes bananas. Why? Because of the gold-to-silver ratio. Historically, the price of gold has been around 16 times the price of silver. So for example, based on the long-term historical average ratio, with the price of gold around $1,725, the price of silver should be around $108. It's not, of course. It's around $32. Today then, the silver ratio is more like 54. What explains the difference between hundreds of years of history and today? Simple – demand for silver as money. During periods of history when silver has been used as a currency, it has almost always been valued around 1/16th the price of gold. When silver has been "demonetized," supplies soar as people sell silver for gold and currency. On the other hand, during periods of monetary crisis, the price of silver tends to increase far more than the price of gold as demand for silver is once again created by monetary needs. This influences the silver-to-gold ratio heavily in silver's favor. For example, the ratio returned to its historic range (16) during World War I. It happened again in the early 1970s, when Nixon abandoned the gold standard. It also happened most famously in 1979-1980, when gold briefly soared to $800 an ounce and it seemed as if America was really entering a severe money crisis. Silver is the best hedge against a money crisis because its price will increase many more times than gold as the gold-to-silver ratio reverts to its historic average. Silver will once again be worth 1/16th the price of gold. It is now worth only around 1/54th. Back in 2006, with gold trading for around $650 an ounce, I set a target at $2,000 an ounce. We're nearly there. A $2,000 gold price divided by the historic silver ratio of 16 sees the price of silver at $125 per ounce – about four times the current price. Given this perspective, I hope you see why silver's move from around $15 an ounce to over $30 in the last three years is only the very early signs of a money crisis. It's going much, much higher. Even if you think I'm nuts, it's still a good idea to hedge your portfolio from the currency risks I believe are very real. You can do so easily and safely by taking a position in silver today. Read more at http://www.stockhouse.com/columnists/2012/oct/23/why-you-must-buy-silver-now#ZCiAgFbmbX8wyIXm.99
Sour economic news has caused the price of gold to spike.
There are civil wars in the Middle East. U.S. diplomats have been murdered in Libya. And the second and third largest economies on earth — Japan and China — are slap-fighting over a pile of rocks in the middle of the Pacific, causing Japanese car sales in China to fall by half.
The list of concerns seem endless...
Greece, Italy, Spain, Portugal, and now even France are on the brink of economic and political Ragnarök.
The United States is mired in debt and malaise of comparable proportions — and yet it has produced an election where the leading candidates exchange catty remarks over a giant yellow Muppet named Big Bird.
Fascism by Another Name
These are historic times with serious global problems, and in the face of all this we humans remain leaderless, divisive, and lost.
In response to years of high-risk gambling that failed, the large multinational banks and their cronies at the various central banks have been crushing CRT+P on their secure black laptops, adding zeros and printing currencies with abandon.
The International Monetary Fund recently downgraded global growth, saying: “Clearly, downside risks continue to loom large, importantly reflecting risks of delayed or insufficient policy action.”
This is banker-speak for “print more money.” It is self-serving cronyism at its best.
If you make more of something, it becomes less valuable — end of story.
History is replete with the horrific ramifications of currency debasement. (Remember, the hyper-inflation of the Wiemar Republic puked out Hitler.)
Fascism is the marriage of corporations and government — in other words, cronyism kicked up a notch.
I am reminded of the great Yeats line: “And what rough beast, its hour come round at last, / Slouches towards Bethlehem to be born?”
The Greek Nazi party recently gained 21 seats in Parliament and won 7% of the vote.
But it is not the end of the world yet, my friends. We have some fight left in us...
When it comes to gold bulls, perhaps none is more strident that Peter Schiff, and the head of Euro Pacific Capital was in fine form Wednesday as he took the Federal Reserve’s easy-money policies to task, saying they are fueling an unstoppable gold rally and won’t do anything to spur U.S. growth.
Speaking at IndexUniverse’s Commodities conference in Chicago, Schiff argued that the Fed’s zero-interest rate policies and its ongoing quantitative easing will do more harm than good for an economy burdened by hefty loads of debt and heading for gale-force inflationary head winds.
“The Fed has said it will keep printing money until we have more jobs. That means we are going to be printing money until we have an economic crisis,” Schiff said during a panel on precious metals at the one-day conference that was held at the Ritz-Carlton on Wednesday, Oct. 10
“The closest thing I know to being a sure thing is that the U.S. dollar is going to depreciate,” Schiff said in a panel discussing the outlook for precious metals. He said that faced with a weakening outlook, gold and other precious metals are a perfect hedge against loss of purchasing power.
Last summer, before the Fed said it was launching its third round of quantitative easing, or QE3, Schiff said he had no doubt the Fed would implement QE3, and stressed that he reckoned gold would eventually reach $5,000.
Gold prices did rise ahead of the Fed’s “QE3” announcement in September—from $1,550 to $1,730 a troy ounce—but that rally stalled since the central bank said it planned to buy $40 billion in mortgage-backed securities per month indefinitely. Still, because of QE3, many gold analysts are confident gold will eventually break through $1,800 an ounce
Deutsche Bank AG DB +1.41% Tuesday raised its outlook for gold and silver prices in 2013 and 2014, citing support from stimulus measures by central banks such as the U.S. Federal Reserve.
The bank raised its 2013 gold forecast by 3% to $2,113 a troy ounce and its 2014 outlook by 11.1% to $2,000/oz. Next year, the price of gold could exceed $2,200/oz, it said.
Similarly, Deutsche Bank increased its 2013 outlook on silver by 3% to $44/oz and its 2014 forecast by 11.1% to $40/oz.
A major support for precious metal prices are the recent moves by central banks to expand their balance sheet, said the bank. Since gold is often sought as a hedge against currency weakness and inflation at times of loose monetary policy, such moves tend to boost its appeal to investors.
"We believe central bank action to stimulate growth, avoid deflation and reduce systemic risk is unambiguously bullish for the precious metals sector and specifically gold," said Michael Lewis, a research analyst at Deutsche Bank.
Gold Rises to 29-Week High on Stimulus by Central Banks
By Debarati Roy and Nicholas Larkin - Sep 19, 2012 10:59 PM GMT+0400
Gold futures rose to 29-week high on speculation that steps by central banks to bolster economic growth will spur demand for the metal as a store of value.
The Bank of Japan (8301) said today that it will add 10 trillion yen ($127 billion) to a fund that buys assets. On Sept. 13, the Federal Reserve announced a third round of U.S. monetary stimulus. This month, European Central Bank President Mario Draghi gave details on a plan to buy debt of member states, while China approved infrastructure spending.
“Gold likes the announcement out of Japan,” Frank Lesh, a trader at FuturePath Trading in Chicago, said in a telephone interview. “People are concerned that this wave of global easing will stoke inflation.”
On the Comex in New York, gold futures for December delivery climbed 50 cents to settle at $1,771.70 an ounce at 1:45 p.m. Earlier, the price reached $1,781.80, the highest for a most-active contract since Feb. 29. The metal has gained 13 percent this year.
Silver futures for December delivery fell 0.4 percent to $34.588 an ounce.
On the New York Mercantile Exchange, platinum futures for October delivery increased 0.3 percent to $1,640.40 an ounce.
Police used tear gas and stun grenades to disperse a crowd near mines in South Africa owned by Anglo American Platinum Ltd. (AMS), the world’s largest producer.
Yesterday, some workers at Lonmin Plc (LMI)’s Marikana mine ended a six-week strike that left at least 45 people dead. Platinum prices jumped 22 percent from Aug. 10, the start of the strike, to Sept. 14.
Palladium futures for December delivery rose 0.9 percent to $673.05 an ounce on the Nymex.
To contact the reporters on this story: Debarati Roy in New York at droy5@bloomberg.net; Nicholas Larkin in London at nlarkin1@bloomberg.net
To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net
By Liezel Hill - Sep 13, 2012 11:28 PM GMT+0400 Gold prices are poised to reach new highs in the next year amid global economic uncertainty and a lack of new supply, the biggest producers said. Gold may exceed $2,000 an ounce within 12 months, Barrick Gold Corp. (ABX) Chief Executive Officer Jamie Sokalsky and Chuck Jeannes, CEO of Goldcorp Inc. (G), said this week in interviews in Denver, where they were attending the Denver Gold Forum. A gold price of $2,000 is “not unreasonable,” Newmont Mining Corp. (NEM) CEO Richard O’Brien said in a presentation at the conference. “The fundamentals that are backstopping a higher gold price are there,” Sokalsky, who heads the world’s largest producer, said Sept. 10. “I’m optimistic that, with the uncertainty throughout the world and the macroeconomic environment and some of the fundamental supply and demand aspects of gold, that we could see new highs on the gold price.” Gold has risen for 11 straight years, reaching a record $1,923.70 an ounce on Sept. 6, 2011 in New York, as investors bought the metal as a store of value and hedge against inflation. Gold futures for December delivery climbed 2.2 percent to settle at $1,772.10 today on the Comex, the first time above $1,770 since February, after the Federal Reserve announced a third round of quantitative easing to boost the U.S. economy and reduce unemployment. ‘Debasement of Currencies’ “The demand side is all about worldwide debasement of currencies and gold being seen as an alternative,” Jeannes, head of the second-largest producer by market value, said Sept. 10. “We see it with central banks buying gold and we see it with investors buying gold to protect themselves from the exposure to currencies that they don’t have confidence in.” Central banks will increase gold purchases by 7.9 percent to 493 metric tons this year as they keep expanding reserves to diversify from the dollar and guard against a potential gain in inflation, Thomson Reuters GFMS, a London-based researcher, said in a Sept. 4 report. Gold prices have risen as investors buy the metal because of economic uncertainty and in anticipation of more stimulus from the U.S. Federal Reserve, as well as in Europe, said AngloGold Ashanti Ltd. (ANG)’s Mark Cutifani , CEO of the world’s third-largest gold producer. ‘Pretty Strong’ “Investment demand has been pretty strong,” he said in a Sept. 11 interview in Denver. “I could easily see it going through $1,800 by Christmas.” It’s becoming more accepted that gold “has a role to play,” Agnico-Eagle Mines Ltd. (AEM) CEO Sean Boyd said in a Sept. 11 interview. “Not the gold standard, but as equivalent collateral to a treasury bond, as possibly collateral on maybe sovereign debt issuances, is starting to be discussed,” Boyd said. “That wouldn’t have happened five years ago.” A lack of new supply will also support prices, Goldcorp’s Jeannes said. Producers including Barrick and Toronto-based Kinross Gold Corp. (K) have said they will be more disciplined in spending on projects and will target higher returns rather than production growth. Gold mine supply will probably be “flat and eventually declining,” Jeannes said. Companies that were trying to build large, low-return projects as a play on future gold price increases are not getting support from investors, he said. “The market is not letting them do that, they are not giving them the money to do it,” Jeannes said. “So we are limited to high quality, high return projects that don’t require a higher gold price to succeed, and that’s limiting supply. The Philadelphia Stock Exchange Gold & Silver Index (XAU), which is made up of 30 gold producers, has declined 15 percent in the past year. To contact the reporter on this story: Liezel Hill in Toronto at lhill30@bloomberg.net To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.nethttp://www.bloomberg.com/news/2012-09-13/gold-ceos-predict-new-highs-within-one-year-on-economy.html
While Bernanke did not explicitly say anything on further easing at Jackson Hole, the bullion market is expecting some more measures in the US Federal meeting on September 12-13 Dilip Kumar Jha / Mumbai Sep 02, 2012, 00:41 ISTGold moved up by 1.74 per cent to set the new record on Saturday in Mumbai’s Zaveri Bazaar following global sentiment where a bullish trend restored after Federal Reserve Chairman Ben Bernanke’s speech in Jackson Hole raised hope for fresh aid to the US economy. While Bernanke did not explicitly said anything on further easing, the bullion market is expecting some more measures in the US Federal meeting on September 12-13, which will be a crucial meeting ahead of US Presidential election in November.
We are seeing precious metals increase in price this morning likely due to European Central Bank head Mario Draghi's so-called assurances that the ECB will do whatever it takes to keep the Euro stabilized. This is a common sense result of more fiat money liquidity into the system. Precious metals become more attractive to investors and traders as more fiat money is pumped into the global system in attempts to avoid an intense crisis or sovereign default.
Copper and Silver are the two biggest risers this morning in the metals complex, with Dec. ‘12 Gold also breaking out above its recent technical resistance level at $1630. It is very important that gold has held key technical support at $1,550 for over two months now. The next major resistance level is at $1,800. Expect the market to remain bullish gold as long as it holds $1,550. Furthermore, gold has broken an important downtrend line providing another reason for buyers to come into the market (see chart). Granted, much of today's move is based on Draghi's comments about the ECB.
However, there is a very interesting 'discrepancy' we notice in the metals markets. While precious metals are all having positive days, the industrial metals group (tin, lead, nickel, aluminum and steel) are actually still near three-year lows. There has been a bear market in tin to the point of Indonesia idling 70% of its tin-smelting capacity due to extremely low profit margins on such low prices of tin. We are hearing concerns regarding China’s consumption are a main cause of an industrial metals sell-off of this year. We notice that tin is currently beneath a major chart support point at 19000 and is near the low part of a down-trend channel forming since 2011 (see chart).
Thus while global equities, food commodities, and precious metals are rallying, we look to the industrial metals as the "counterpoint" to the global monetary expansion euphoria.
ABOUT THE AUTHOR
Anthony Lazzara
Anthony Lazzara, CEO of Newport Beach, Calif., commodities investment firmLido Isle Advisors , spent 10 years as a trader and floor broker at the Chicago Board of Trade and Chicago Mercantile Exchange.
When it comes to gold, Warren Buffett doesn’t know what he’s talking about, according to one of the metal’s most ardent European fans.
Gold is likely to hit a record high of $2,000 (U.S.) an ounce over the next year, driven by fears over government deficits and worries that central banks will be forced into more money printing, according to Erste Group, an Austrian bank.
The bank believes the precious metal will eventually rise even further, reaching at least $2,300 an ounce, which would match its high from the early 1980s if inflation is taken into account. In a recent report to clients the institution says that given the instability in the global financial system, its price forecast “could be on the conservative side.”
Erste Group has been producing annual forecasts of gold prices since 2007, and has been bullish over the period – an accurate call, given gold’s surging fortunes over the past five years.
This year’s 120-page report includes such quirky measures as how many litres of beer can be purchased at Munich’s Oktoberfest each year with an ounce of gold. It also features a lengthy discussion on Mr. Buffett’s well-known antipathy toward gold, which the bank views as an irrational form of “aurophobia.”
The bank says that Mr. Buffett doesn’t understand that bullion is a form of money and therefore shouldn’t be compared to stocks as an investment. It maintains that the proper comparison is between gold and competing types of money.
Mr. Buffett “criticizes the low industrial use, the lack of intrinsic value, and questions the general reasonableness of buying gold. We believe that Buffett has made a fundamental error, having missed the connection between gold and money and is thus comparing apples and oranges.”
The bank says that Mr. Buffett’s negative view on gold would apply equally well to the U.S. dollar, which “has no intrinsic value, no industrial use, and does not pay any interest at this point in time either.”
To be sure, Erste Group’s Oktoberfest beer comparison indicates that gold is a little pricey now, at least compared to the long-term average of the yellow beverage in terms of the yellow metal.
Since 1950, an ounce of gold bought an average of 87 litres of beer at Munich’s outdoor gardens. Currently, it’s 136 litres.
However, the record high for this beer-based measure of a liquid asset was 227 litres back in 1980, a level the bank says could again be attained.
“We think it is indeed possible that we will see these values again. Beer drinkers with gold in their portfolio should therefore look out for sparkling times,” it noted.
The bank says one of the big questions facing investors is whether the global economy will be hit with higher inflation or a bout of deflation.
Either scenario will be bullish for gold, in its opinion. “In times of inflation tangible goods are the preferred asset class, whereas in deflation it is cash. Gold is liquid, divisible, indestructible, and easily transportable. It also has a worldwide market and there is no default risk. It is thus cash of the highest quality.”
Turning to gold stocks, the bank says mining equities are at “extremely attractive” valuations.
Stocks in the Gold Bugs index, a basket of large producers that don’t hedge their production against price fluctuations, have a projected price-to-earnings ratio this year of 13.9 times, less than half the average level of 28 times over the period from 2000 to 2012.
Investors are as pessimistic toward gold mining stocks as they were four years ago during the financial panic, but gold miners are far healthier than they were back then, the bank says. Their balance sheets are stronger, their free cash flows are higher, while their debts are low and their dividends are rising – all factors that will eventually drive share prices higher.
The bank says gold investors should restrict themselves to jurisdictions that are unlikely to experience “resource nationalism,” the term for countries that try to extract more value from their wealth in the ground at the expense of mining companies.
Among its favoured jurisdictions is Canada.
“We believe that solid mining shares in politically stable regions currently represent a high-leverage bet on the gold price with an attractive risk/return profile,” the bank says.
Oil and gold will make the best trades ahead of a potential fresh round of quantitative easing by the Federal Reserve, Joe Clark, Founder and CIO of Financial Enhancement Group, told CNBC.
Diamond Sky Images | Photodisc | Getty Images
NYMEX crude oil[CLCV182.70-2.12(-2.5%)] has lost almost 20 percent in the past three months and Clark said that oil has been particularly oversold and represents a good trading opportunity should the Feddecide to print more money to help the economy.
“You have to look at oil and say: ‘All right, we’ve got an issue here,’” Clark told CNBC. “The probability of more QE, I wouldn’t say it’s 100 percent, but it’s extremely high. If you believe that, you have to look at oil and say: 'OK, that’s probably got to rebound,'" Clark told "Worldwide Exchange".
He also expects a rebound for gold [XAU=1578.10-11.05(-0.7%)], which has lost about 7 percent since March.
“I’m not a big fan of gold, I can’t eat it, I can’t sleep with it, it’s not one of those things I want to keep around forever, but if QE comes out you’re going to see those commodity prices rise,” he said. “Gold and oil are the two places that people can trickle into a little bit.”
Clark believes the positive momentum in the markets will continue, but he warns that the impact of fresh stimulus will be short-lived compared to the last round of QE.
“I believe you’ll see people pull out of the market before QE3 unwinds,” he told CNBC. “So you will see the positive response, kind of like 'buy the news,' but it will be sold sooner than what we saw in the last round of easing.”
HARRISONBURG, Va. (MarketWatch) — March was very cruel to gold bugs. But they think the metal will now rebound.
Gold measured by the CME active contract floor-close was down 6.5% or $116.20, measured from Feb. 28. The NYSE Arca Gold Bugs Index XX:HUI+1.09% was down 13.8%. (Measuring from Feb. 28 represents March better. Leap Year Day, Feb. 29, saw a brutal sell off, smashing a promising rally and establishing the new month’s character.)
The last month of a quarter seems to be a dangerous time to own gold instruments. Last December was gruesome too, giving gold bugs a notably unmerry Christmas ( See Jan. 2 column. )
But in January, gold rebounded. Could another new-quarter reversal be possible?
The latest of gold’s two decent attempts to rally in March peaked last Monday. Although gold then fell back, over the whole week gold gained 0.6%, and further comfort to the bulls was offered by gold’s starting to rise mid-morning in New York on Thursday and adding $17 on Friday — when the HUI closed up 1.09%.
Chinese demand driving commodities strategy
Minmetals Resources' majority stakeholder is the Chinese government, and the company is bullish that demand from China will continue to fuel the market for copper and zinc, according to its CEO Andrew Michelmore.
And there’s possibly bullish news out of India, by far the largest importer of gold. (China is a rival to India in consumption, but it mines the bulk of the gold it needs: India mines almost none).
The Indian government doubled import duties on the yellow metal on March 17. The huge Indian gold fabricating and retailing trade responded by going on strike! Reports from bullion dealers confirm that Indian imports subsequently have been very light, despite the low gold price.
But on Friday evening, HSBC gold analyst James Steel came up with something of a scoop: He reported that the strike is over. Subsequent newswire stories appear to confirm this.
There are differing opinions as to how much the increase in the gold duty — to just over 4% — will impact longer-term Indian demand. But in the short run, a substantial increase in imports after the drought of the last two weeks seems likely.
Gold bugs see reason for optimism from another angle too. CME gold open interest (the number of gold contracts outstanding, reflecting total public participation) plunged far more than gold in this period — down 15.2% to Thursday’s close (Friday’s will not be published until Monday morning).
Not only is this more than double gold’s 6.5% decline, but it also takes open interest down to the level of early September 2009, when gold was in the upper $900s.
The Golden Truth website points out that after the September 2009 decline, “gold began the move to its 2011 cyclical peak just below $1,900. During that run, open interest expanded to over 660,000 contracts.”
Big declines in open interest on falls in the gold price normally mean liquidation by CME contract longs. A posting over at the LeMetropoleCafe website suggests the March problem was the “liquidation of some major spec involvement”.
If so, the new quarter could well see a directional change.
More evidence: an interesting chart supplied on Tuesday by Standard Bank, an active bullion dealer. This was its Gold Physical Flow Index, derived from the actual metal demand it is experiencing.
Gold offtake was the highest since June last year, just before the $400 rise into August. The bank acknowledged recently weak Indian demand but reported strong interest elsewhere in Asia.
Gold bugs hope that, without continued selling, this means gold has to rise — particularly if India indeed comes back on line. ByPeter Brimelow, MarketWatch
HARRISONBURG, Va. (MarketWatch) — March was very cruel to gold bugs. But they think the metal will now rebound.
Gold measured by the CME active contract floor-close was down 6.5% or $116.20, measured from Feb. 28. The NYSE Arca Gold Bugs Index XX:HUI+1.09% was down 13.8%. (Measuring from Feb. 28 represents March better. Leap Year Day, Feb. 29, saw a brutal sell off, smashing a promising rally and establishing the new month’s character.)
The last month of a quarter seems to be a dangerous time to own gold instruments. Last December was gruesome too, giving gold bugs a notably unmerry Christmas ( See Jan. 2 column. )
But in January, gold rebounded. Could another new-quarter reversal be possible?
The latest of gold’s two decent attempts to rally in March peaked last Monday. Although gold then fell back, over the whole week gold gained 0.6%, and further comfort to the bulls was offered by gold’s starting to rise mid-morning in New York on Thursday and adding $17 on Friday — when the HUI closed up 1.09%.
Chinese demand driving commodities strategy
Minmetals Resources' majority stakeholder is the Chinese government, and the company is bullish that demand from China will continue to fuel the market for copper and zinc, according to its CEO Andrew Michelmore.
And there’s possibly bullish news out of India, by far the largest importer of gold. (China is a rival to India in consumption, but it mines the bulk of the gold it needs: India mines almost none).
The Indian government doubled import duties on the yellow metal on March 17. The huge Indian gold fabricating and retailing trade responded by going on strike! Reports from bullion dealers confirm that Indian imports subsequently have been very light, despite the low gold price.
But on Friday evening, HSBC gold analyst James Steel came up with something of a scoop: He reported that the strike is over. Subsequent newswire stories appear to confirm this.
There are differing opinions as to how much the increase in the gold duty — to just over 4% — will impact longer-term Indian demand. But in the short run, a substantial increase in imports after the drought of the last two weeks seems likely.
Gold bugs see reason for optimism from another angle too. CME gold open interest (the number of gold contracts outstanding, reflecting total public participation) plunged far more than gold in this period — down 15.2% to Thursday’s close (Friday’s will not be published until Monday morning).
Not only is this more than double gold’s 6.5% decline, but it also takes open interest down to the level of early September 2009, when gold was in the upper $900s.
The Golden Truth website points out that after the September 2009 decline, “gold began the move to its 2011 cyclical peak just below $1,900. During that run, open interest expanded to over 660,000 contracts.”
Big declines in open interest on falls in the gold price normally mean liquidation by CME contract longs. A posting over at the LeMetropoleCafe website suggests the March problem was the “liquidation of some major spec involvement”.
If so, the new quarter could well see a directional change.
More evidence: an interesting chart supplied on Tuesday by Standard Bank, an active bullion dealer. This was its Gold Physical Flow Index, derived from the actual metal demand it is experiencing.
Gold offtake was the highest since June last year, just before the $400 rise into August. The bank acknowledged recently weak Indian demand but reported strong interest elsewhere in Asia.
Gold bugs hope that, without continued selling, this means gold has to rise — particularly if India indeed comes back on line.
]![[cnbc explains]](http://media.cnbc.com/i/CNBC/Sections/News_And_Analysis/_News/_CNBC_EXPLAINS/_IMAGES/CNBC_explains_icon1.gif)
