We have already noted here on sharpspixley.com the huge physical gold withdrawal levels out of the Shanghai Gold Exchange (SGE) so far this year and high Indian gold import levels, although to be fair the drop in gold premiums of late in the latter country to a reported discount do suggest gold consumption there may be waning a little. But regardless – even if Indian gold consumption slips in the second half of the year the combination of Chinese demand as expressed by the SGE figures, central bank buying – notably by Russia, China (which is now reporting gold reserve increases month by month), Kazakhstan and others – and evidence of strong coin and bar purchases in the USA and Germany in particular all suggest that gold could be at a turning point in that, whatever some gold analysts will tell you, there could be something of a significant gold supply/demand squeeze ahead. The figures out of all these nations noted above, plus significant demand elsewhere, do suggest global demand strongly in excess of global new mined supply – although the mainstream analysts appear to disagree, largely due to their interpretations of Chinese demand which is by far the biggest element involved in their calculations.
On the supply side, global new mined gold output may well be up again this year, but only by a small amount, and there has been some offloading out of the gold ETFs. But this latter has been somewhat erratic and is hugely below the levels seen in 2013 which had a big adverse impact on the gold price that year, and in any case appears to be countered by a continuing fall in supplies from the scrap market due to lower gold prices.
There are arguments that gold supply/demand fundamentals have little short term impact on the gold price which is currently largely driven by speculative activity on the COMEX gold futures market. But eventually fundamentals have to have an impact – and with the prospect of more and more of the gold trade moving to Asia, where the primary market drivers are in physical metal rather than futures, we could be beginning to see something of a sea change. Gold’s recent price performance at least showing some limited strength, despite virtually every bank analyst of note predicting further sharp falls, could even be beginning to suggest a change in sentiment. In the overall commodities sector gold and silver have been performing far better than most others so far this year – even in the U.S. dollar. They have also performed better than most major stock indices. Their prices have indeed fallen, but only by a small percentage in U.S. dollars – and have actually risen in most producer currencies.
This post was published at Sharps Pixley
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