PETER BRIMELOW
April 2, 2012, 12:02 a.m. EDT
Gold bugs think Q2 will bring new rebound
Commentary: Indian buying seems likely to resume
Peter 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. By Peter 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.
