Editors Note: Despite gold at near 6 year lows, global demand for physical bullion remains very high. This is clearly seen in the recent demand data from the U.S. Mint and other mints and demand data from GFMS and the World Gold Council which shows very robust demand from Germany, India and of course, China.
There is also the very high official demand from central banks and, in particular, the Russian central bank and the People's Bank of China (PBOC). Today came news that China's gold reserves rose by another 21 tonnes in November, the biggest bout of gold buying since China began disclosing monthly data on China's gold reserves in June - see Gold News.
Last week data showed that sales of American Eagle gold coins at the U.S. Mint surged in November, with gold demand nearly tripling month-over-month as bullion prices fell to multi-year lows.
Despite these very high levels of demand, gold prices fell sharply in November - from $1,141/oz to $1,070/oz or 6.6%.
Gold prices continue to be determined by traders and speculators in the futures market as evidenced by the Commitment of Traders (COT) data, showing that hedge funds now have record short positions. This typically occurs close to market bottoms and - along with the supply demand fundamentals - would suggest gold is close to bottoming.
Gold prices continue to be determined by traders and speculators in the futures market as evidenced by the Commitment of Traders (COT) data, showing that hedge funds now have record short positions. This typically occurs close to market bottoms and - along with the supply demand fundamentals - would suggest gold is close to bottoming.
Futures participants are eagerly awaiting the Fed's interest rate decision next Wednesday, December 16th. Should the much heralded and anticipated 25 basis point rise materialise as is expected, then we expect gold could show further weakness.
Weakness into year end seems quite possible given the poor technical position, poor sentiment in western markets and momentum which can be a powerful thing. $1,000/oz gold seems increasingly likely and it appears to be gravitating to this big round number.
Chinese New Year looms and demand from China should provide support at these levels and should spur gains in January.
Dr Constantin Gurdgiev covered the surge in demand for gold coins from the U.S. Mint on his blog:
Following October fall-off, sales of U.S. Mint gold coins rose strongly in November to 135,000 oz by weight (+86.2% y/y) and 237,500 units (+95.5% y/y).
These figures include sales of both Eagles and Buffalo coins. Average weight of coin sold also rose strongly to 0.5684 oz compared to 0.4709 oz in October and close to 0.5967 oz/coin in November 2014.As noted in my note covering October sales, October decline was a correction reflective of volatile demand and also significant uplift in sales in previous months.
As chart above shows, sales by weight are now well above period average and above peak period average. In 11 months of 2014, US Mint sold 679,500 oz of gold coins; over the same period of 2015 sales totalled 1,020,000 oz.
November 2015 also marked 20th consecutive month of gold sales/price correlations (12mo running) being negative, suggesting strong and entrenched demand from buyers pursuing long hold strategy and taking advantage of improving cost of holding gold.
Continue reading Dr Constantin Gurdgiev blog on U.S. Mint gold coin demand
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