Quote:
Focus: Gold selling fizzles out
In our last physical flow update at the start of May (Commodities
Daily 4 May 2010) we reported on large amounts of scrap and
other physical selling in the gold market. This selling trend continued
throughout May, but now seems to have run its course.
Also in May, gold ETFs added almost 150 tonnes to holdings (which increased
from 1,800 tonnes 1 May to 1,950 tonnes 1 June). The
investment market is very bullish and, without the scrap and other
gold selling in the physical market, the gold price could arguably
have been much higher.
Physical market selling is graphically presented alongside; the
Index pushed deeply into negative territory in April and May (an
index value below zero indicates net selling in the physical gold
market).
But in recent days, selling has slowed, and our index is near neutral
territory despite the gold price having edged back above
$1,200 (see graph).
Re future physical flows: Our analysis shows that, after controlling
for movements in the gold price, Q3 jewellery demand is slightly
weaker than in Q2. We therefore infer a lull in gold demand in
Q3:10. Jewellery gold demand is by far the strongest in Q4.
However, H2:09 produced, on average, an index value above zero
— which implies that the physical market had provided upward
momentum to the gold price. We expect strong gold
demand in H2:10. An index value above zero combined
with healthy investment demand could only spell
new record highs for gold.
By Walter de Wet.