While speculators have reduced their net long gold positions from a high of 254,000 contracts in August 2011 to around 34,000 contracts as of year-end, the physical market has been booming.
There is precious little bullion left in the West today to supply rapidly increasing Asian demand. It is important to understand how little there is and the dangers this poses for financial stability.
India’s growing GDP is very important to gold’s rise, especially when it comes to the Love Trade. The math shows that an increasing GDP per capita in this part of the world has historically been linked to the rising price of gold.
While paper gold is getting the cold shoulder in the West, the Love Trade buyers in the East are wrapping their arms around all the physical gold they can get their hands on.
Gold demand in China, India and the Middle East surged in the 12 months to September while European sales contracted, underscoring a shift in the global bullion market from west to east, according to the World Gold Council.
The London Metal Exchange, the world’s biggest industrial-metals marketplace, altered its rules to speed up withdrawals from warehoused stockpiles amid consumer complaints that prompted scrutiny from U.S. regulators.
Open interest data in the last week suggested long liquidation by tactical investors while the Indian Diwali gold purchases season was off to a slow start, providing a fragile floor for gold prices.
Gold premiums in India, the world’s largest user, climbed to a record as jewelers rushed to secure supplies to meet soaring demand during festivals and weddings amid government curbs on imports.
Historically, September has been gold’s best month of the year. Looking at more than four decades of monthly returns, the precious metal has seen its biggest increase this month, averaging 2.3%. Will that trend continue?
Investors still seem wary of gold’s dramatic collapse in the first half of this year. The question has since become, how low should gold be priced in order to bring supply and demand into equilibrium?
