High levels of demand for Bullion: will the gold price go up?

Those looking for a sharp upwards reversal in the gold price given the continuing high levels of demand for physical metal, principally from the East and Middle East have so far been disappointed with the yellow metal struggling to retake the $1800 level, so far unsuccessfully. Price setting seems to be remaining well in the hands of North American markets where all that seems to be seen is the continuing offloading of inventory from the big gold ETFs in the light of artificially high stock markets, boosted by siren songs from the politicians and bankers and (almost, 10 years) ever-continuing Quantitative Easing.

There is certainly a degree of continuing nervousness in the precious metals markets with many commentators predicting further falls in gold and silver ahead.

What may, however, reverse the trend could be the figures for Chinese gold imports from Hong Kong for April 2021 as these may prove to be absolutely enormous.

While purchasing from the Asian markets has steadied a little now, after April’s mega rush, eastern demand mostly remains strong, although that in India has slowed somewhat as the government turns the screws on gold traders, and the farming community – responsible for much of that country’s gold purchasing and hoarding – is now in crop planting mode which tends to reduce demand at this time of year.

Frightening in terms of all the maths suggesting that the world’s major stock markets are due to see a big downwards correction/crash as history, economic theory and simple mathematics are all pointing in this direction.  It is illogical, Williams avers, that markets should be rising when virtually every other economic indicator is pointing in the other direction. 

In his view a market fall of significant proportions is imminent – the only thing holding it up is the naivety of investors in the true interpretation of the utterances from the U.S. Fed, the ECB and Bank of Japan et al and where their policies will ultimately lead us.

The final quarter hour of his presentation was devoted to gold and his comment that the gold price and the price of gold are not the same. The former is that set by the main bullion markets, COMEX and the LBMA and is very much dominated by activity in the paper gold market, while the latter relates to the price an investor in physical metal actually has to pay for it – a sharply higher figure given the high premiums currently abounding for delivery of actual bullion.

last 6 month gold prices in dollar

He also took time to analyse, statistically, the enormous take down in the gold price seen in mid April, which has very much set the scene for the ‘gold price’ since.  In straight statistical terms, the strange trading action in the markets over the two short days trading which saw the fall in the gold price from close to $1790 to below $1700, accomplished by the unloading of vast tonnes of paper gold on the markets, represented a standard deviation from the normal trading pattern over the years of just below 8. 

This represents something which statistically would only occur not more than once in more than a billion years!!!  Thus “the price movements seen challenge every law of mathematical probability ever written” says Williams.

He also pointed to the surge of buying worldwide which accompanied the 15% gold price fall.  Unlike stock market collapses when investors tend to stampede to sell their shares, in this case investors worldwide were stampeding to buy gold – indeed price premiums  – setting ‘the price of gold’ – were so high that the entire price fall in ‘the gold price’ was more than negated by the prices actually paid in the rush to buy.  That says something about the way people envisage gold and suggests that the bull market may yet be far from over.

Indeed Williams pointed out that in the first quarter of this year Chinese imports of gold from Hong Kong were already running at record levels and this is before the April figures are known – a figure which is likely to be ‘staggering’ he says.

So, perhaps all is not yet lost for gold investors.  True, those responsible for the huge concerted takedown of the gold price in April – preceded earlier that week, surely not coincidentally, by high profile sell calls for gold from Soc Gen, Credit Suisse and what Williams described as an ‘extraordinary’ short gold call from Goldman Sachs –  may not be done yet, however the buying response of the public to the price fall from their last effort may have surprised them and may be seen as suggesting that this kind of level of demand from the public may put an effective floor under the metal price.

It also sees a huge offloading of physical gold into what are almost certainly stronger hands and thus will be creating short term shortages of physical metal which could open short gold sellers up to a serious short squeeze. 

There are already reports coming through of reluctance of some banks to transfer physical gold to gold depositors with them, and/or of long delays in making such transfers. 

This is not the first time such reports have surfaced, but there is a feeling developing that physical gold is becoming tougher to come by, which is already filtering through in the premiums one has to pay to buy physical metal. 

Perhaps we are entering a whole new phase in the gold market which those seeking to control it may have increasing difficulty accommodating.

By Alexandre Laurent

Alexandre Laurentl is working in the jewelry and investment gold since 2002. Alexandre graduated from The Normandy School of Business and from the University of Perpignan a Bachelor of economics in 1995.

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