Gold Investments Market Update – Investment Demand Surging Internationally as Stagflation Deepens

Gold

Gold finished trading in New York yesterday at $810.80, up $10.30 and silver was down 8 cents to $13.11. Both gold and silver remained firm in Asian trading but have given up some of the gains in early European trading. Gold is trading at $807.30/807.70 per ounce (1045 GMT).

Gold, rebounding from oversold levels, rose for the second time yesterday and there was an outside day reversal to the upside which is technically bullish (the market made a new low during the trading session, but closed higher than the previous day’s high). This is a short term bullish indicator and often happens near market bottoms and could mean a trend reversal is developing.

Especially as the fundamentals remain very strong with geopolitical risk, deepening worries about the financial sector, poor economic data, soaring inflation and stagflation internationally leading to very significant physical demand internationally.

Retail demand is huge in the U.S. with retailers, wholesalers, refiners and government mints having difficulty keeping up with physical demand for coins and bars. In India too the demand is massive with gold inventories cleared out, shortages and soaring premiums.

Available bars of gold in India have all but disappeared, due to a ‘perfect storm’ that has restored gold’s lustre and forced physical premiums skyward ahead of the peak season for jewellery demand. A senior figure at a bullion bank in London said “pretty well everyone is sold out of stock there. We have seen premiums as high as $2.50 an ounce which is unheard of in India. Most refiners are now booked solid through September.”

Reuters reports strong physical demand throughout Asia and in India this morning: “Premiums for gold bars shot to their their highest level this year as consumers returned to the physical market in droves, encouraged by a sharp drop in bullion prices ahead of key religious festivals in Asia.”

Another indication of the strength of investment demand is seen in the lack of selling or redemptions in the precious metal ETFs. Gold, silver, platinum and palladium prices have fallen some 20%, 36%, 39% and 51% respectively. However ETF gold holdings had only fallen 4.1% to 1000.1 tonnes as of last Friday. ETF holding’s of silver, platinum and palladium are down 1.3%, 41.4% and 5.3% respectively.

This clearly shows that ETFs are being bought by long term holders who are concerned about macroeconomic and systemic risk. Speculators remain in the futures market with all the leverage and risk involved but smart money investors are remaining passively in the precious metals (particularly in gold and silver) in anticipation of higher prices as the global economic crisis deepens.

Gold and Silver

Gold is trading at $807.30/807.70 per ounce (1045 GMT).
Silver is trading at $13.16/13.20 per ounce (1045 GMT).

PGMs

Platinum is trading at $1345/1355 per ounce (1045 GMT).
Palladium is trading at $281/285 per ounce (1045 GMT).

Mark O'Byrne

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