The World Gold Council this week released some very interesting data which I want to relay here although you can get it firsthand by clicking on the link below to take you directly to their site.
I want to first start with a chart of the largest gold ETF, GLD. I consider this ETF to be a very good proxy for overall WESTERN gold investment demand.
Notice how the gold holdings in the ETF have been consistently dropping for this entire year thus far. GLD Began the year with 1350 tons of gold reported in their holdings. As of yesterday, August 15, reported holdings are 913 tons. Doing the math we learn that a total of 437 tons have gold have been offloaded from this ETF by predominantly large WESTERN investors, aka, hedge funds. So we have it established that investment demand for gold in the West has been pitiful. That we know and have stated repeatedly as the gold price chart has continued to deteriorate for most of this year.
However, what stands out to me in the WGC data is this: (By the way, I could not help but notice that they misspelled the word ' jewelry)!
Globally, jewellery demand was up 37% in Q2 2013 to 576 tonnes (t) from 421t in the same quarter last year, reaching its highest level since Q3 2008. In China, demand was up 54% compared to a year ago; while in India demand increased by 51%. There were also significant increases in demand for gold jewellery in other parts of the world: the Middle East region was up by 33%, and in Turkey demand grew by 38%.
Bar and coin investment grew by 78% globally compared to the same quarter last year, topping 500t in a quarter for the first time. In China, demand for gold bars and coins surged 157% compared with the same quarter last year, while in India it jumped 116% to a record 122t. Taking jewellery demand and bar and coin investment together, global consumer demand totalled 1,083t in the quarter, 53% higher than a year ago.
Look at that last sentence again.... total global consumer demand for gold totaled 1,083 tons in the second quarter. The report also states that demand for bars and coins was 508 tons - that is more than enough to completely absorb the 437 tons of gold dishoarded by hedge funds!
What the hedge funds have been throwing away, the Chinese and the Indians have been buying as well as smaller buyers of bars and coins.
This fits with the Commitment of Traders reports which have been detailing the continued long liquidation by the category of traders known as Managed Money or Hedge funds, not to mention the rapid escalation of new short positions in gold.
It has been this solid, sustained demand for PHYSICAL GOLD that has put the price floor under this market and prevented the bears from cracking the market lower. However, in and of itself, that buying was insufficient to drive the price SHARPLY HIGHER. To do that, MOMENTUM BUYERS must make their entrance into the metals markets. That now appears to be occurring; not in a large way as of now, but nonetheless it is happening.
As mentioned yesterday hedge funds are beginning to take a look at the precious metals once again and getting some exposure on the long side. They are grossly under-invested in this category (and that includes the mining shares) and thus we are seeing somewhat of a rebalancing of their portfolios to favor a larger exposure. This bodes well for the metals as we head into the historically strongest season for gold prices.
Oh and by the way, It is certainly helping matters to learn that Paulson has cut this holdings in gold in a significant way. A move by such a large player of his nature goes a long way in assuaging fears that more "capitulation" type selling in gold is coming. Maybe we can look back at some point in the near future and point to his selling as the final bottom. I find that incredibly ironic. It also goes to show how the STREET shows no mercy and has no friends whatsoever but is a violent, cruel and brutal entity. The smaller barracudas seem to relish harassing the larger sharks when opportunity presents itself.
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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