Western Speculators Sell Gold; Asia and West Buy Bullion - Coin and Bar Supply Increasingly Tight
Gold is higher in most currencies but especially in dollars and Swiss francs. The dollar and European equities are lower due to nervousness prior to Bernanke’s speech at Jackson Hole. Expectations are waning that Federal Reserve Chairman Bernanke will indicate further quantitative easing measures to prop up the ailing U.S. economy – at least in the short term.
Gold is trading at 1,790.80 USD , 1,241.10 EUR , 1,098.90 GBP, 1,422.50 CHF and 137,779 JPY per ounce.
Cross Currency Table
Gold’s London AM fix this morning was USD 1,787.00, EUR 1237.10, GBP 1094.17 per ounce (up from yesterday’s USD 1,716.50, EUR 1191.10, GBP 1049.59 per ounce).
Gold rose sharply from the low of $1,704.25 yesterday and eked out a 0.3% gain. It is too soon to say if the sell off is over though.
Gold is set to finish the week lower as it is 3.7% lower so far on the week. This will embolden the momentum traders on the COMEX. There is also the risk of another margin increase from the CME. Although it is hard to know how they could justify this as gold’s leverage is now in line with most commodities and less than that on US Treasuries.
Gold in US Dollars – Two Weeks (Tick)
The correction was primarily due to the Shanghai and COMEX margin increases. Profit taking and short selling also took place due to gold’s short term very overbought status.
Mitsui in London note the unusual nature of the PM fix yesterday "in an extraordinary afternoon fix in London, gold was pushed down from a starting price of $1,806 to fix at $1,770."
Sharps Pixley’s respected Ross Norman noted that the furious nature of the selling could be motivated by Jackson Hole: "I have never been a fan of conspiracy theories but I do wonder about the manner and timing of the sell-off. Much of the selling was conducted through the London p.m. fixing (when New York was active) which is a favored route for official (central bank) selling rather than being finessed into the market as a fund might prefer. It was, if you like, a statement - and quite a handy and effective one just in advance of the Jackson Hole meeting."
Our conversations with people in the industry and our own experience makes us confident that this is a paper driven sell off drive primarily by speculative, leverage interests on Wall Street.
Bullion dealers and banks have not changed their long term outlook for gold and are ignoring the considerable “noise” and bubble chatter on Twitter and in the media in recent days. This chatter has again come from those who have little understanding of the reality of the gold market.
GoldCore like other bullion dealers, bullion banks and government mints internationally have experienced near record demand for physical bullion coins and bars in recent days.
Overall supplies of small gold coins and bars are at low levels and some refiners are having difficulty meeting demand with some indicating delays in providing stock of six weeks. Perth Mint gold bars (1 oz) at competitive prices remain available in volume.
UBS note that their gold bullion sales to India were the best this week since May – twice the average daily volume.
Robust physical demand from Asia is again clearly seen in premiums for bullion in Asia. In India, ex-duty premiums were $5.82 on the London AM Fix and $10.80 on the London PM Fix with world gold at $1,732.62 and $1,707.10. These are high premiums and show that demand from the sub continent remains very healthy.
Bloomberg Composite Gold Inflation Adjusted Spot Price - U.S. Urban consumers price index (CPURNSA)
High premiums in India have been a fairly good indicator of lows in the world gold price. Sometimes, world gold rises high enough that imports stop.
India’s economy is strong and growing thereby creating a significant‘wealth affect’. There are now more than 83,000 US dollar millionaires in India along with 1 billion people with an affinity for and belief in gold.
India remains a significant buyer today and that is before September which is the big month for gold demand as the Indian wedding season begins.
In Vietnam, local gold was at a premium of $34.22 to world gold of $1,761.90 as inflation has surged in Vietnam on dong depreciation. Limits on gold shipments have been removed for some companies as part of attempts to halt a surge in domestic prices.
Bloomberg reports that in Vietnam, gold rose to as high as 47.1 million dong ($2,263) per tael in Hanoi as of 3 p.m. local time, compared with 45.6 million dong yesterday, according to the Vietnam Posts and Telecommunications. One tael is about 1.2 ounces. “Banks continued to buy dollars to import gold due to the significant gap between domestic and international gold prices,” Viet Capital Securities Joint-Stock Co. wrote in a note late yesterday.
Premiums on gold bars in Hong Kong and Singapore have also been healthy in recent days. "Investors are feeling really comfortable holding the metal at any prices," a Hong Kong-based trader told Dow Jones on Wednesday when gold has corrected to $1844/oz.
In Shanghai yesterday, near record volume saw gold close at a premium of $9.02 to world gold of $1,744.80. China’s total demand for gold has increased on average 14% every year since 2001, but much of it has been propelled by individual investors, Caixin Online reports.
Asians beg to differ with those calling gold a bubble and Asia is clearly a buyer at these levels.
Asians understand gold is a store of value and financial insurance.
Gold's value is that it is a safe haven asset. These are not the claims of a vested interest but an empirical fact backed up by much international academic research.
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(The Street) -- Gold Prices Rally Ahead of Bernanke's Speech
(Bloomberg) -- Gold May Rebound After Plunge From Record Price, Survey Shows
(MarketWatch) -- Gold advances ahead of Bernanke speech
(Bloomberg) -- Gold Set to End Best Weekly Run in More Than 4 Years, Dropping From Record
(Wall Street Journal) -- Gold's Violent Slide Shows Strains Among Investors' Ranks
(Forbes) -- Gold Tumbles 10% Due To Over-Extension: Bullish Fundamentals Still In Place
(Reuters) -- "Increasingly obvious that we're approaching some kind of end game of our paper money system"
(ZeroHedge) -- Caution: Another Gold Margin Hike Imminent
(CNBC) -- QE3 Is Coming by Year End: Roubini
(The Telegraph) -- Nobel gurus warn Britain on fiscal overkill and Fed on monetary overkill
(MarketWatch) -- After the Gold Rush
(The Irish Times) -- Gold Bubble?
(CNBC) -- Roubini: “Cash is going to be king; Gold is in a hyperbolic bubble”