Thursday, April 18, 2013

Physical Gold in Great Demand

Since the large decrease in the price of gold this week, gold physical demand has been very large.

In Australia there are pictures of people queuing at bullion shops. In Thailand, demand has surged. In the US, gold and silver eagle sales are at all-time records. Savvy buyers are seeing a bargain price. And believe it or not, reports (as below) of large Asian Central banks on the bid for physical gold as the market crashed downwards. Now, that is interesting.

Add to this the recent 'default' by ABN Amro bullion custodians (they settled gold they should have had for cash and closed) and the recent seven year delivery time for German gold, then you have the dots beginning to form for a run on physical gold. Now when gold is leveraged by 100 paper ounces to every 1 physical gold ounce, watch this space, the leveraged paper market could very well be in trouble.

This from Murray Dawes of the Daily Reckoning today:



I was chatting with a mate of mine on Tuesday who took the opportunity presented by the collapse in precious metals to buy some for himself.

He wandered down to his friendly local metals dealer and was confronted by a huge line going out the door.  He took the opportunity to ask those in the queue (apparently made up predominantly of Asians and Indians) whether they were there to sell or to buy and every single person said they were there to buy.

This was on a day when prices had had their biggest collapse in 30 years…



Shouldn’t there have been panic in the streets, with investors doing all in their power to get rid of their gold at all costs? No. Quite the opposite in fact.

Another contact at a large bank told me Asian central banks were on the bid (lining up to buy) all day on Tuesday. A collapse like the one we’ve seen will bring a lot of latent demand to the fore. In fact my expectations are that we’ll see a vicious bounce in the gold price, sooner rather than later.

I think it’s a bit like jumping on an inflated ball in the pool.  The further you push it down the quicker it will whip back in your face.

The rumours are swirling around the internet about the reasons for the take down. Ben Bernanke and his cohorts are at the top of the conspiracy list of course. I wouldn’t be surprised at all if that was the case.

It appears that the bulk of the selling is in the paper gold market. But the fact is that the failure of multi-year support around US$1,530 would have led to a cascade of stop losses that would have fed on each other.
Throw in the margin calls for leveraged positions and suddenly you had traders eyeing off the window ledge nearest their desk. 

Any trader worth his salt would have known that a big fall was on the cards below those lows, so if the big boys did want to set off the avalanche all they had to do was give it a nudge at the top, then sit back and watch the mayhem ensue while covering their shorts on the way down.

Easy money.


Gold in New Zealand dollars: $1614.59 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $27.44 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)
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