Re: GOLD Where is it heading?
rederob
The trick is to avoid cenceptual confusion and isolate the key drivers of trends.
It is not useful to discuss liquidity in fundamental supply/demand scenarios unless there are no buyers because there is no money, or because the product prices itself out of the market.
Which is a definite problem.
GDP per capita of India is $3,500
GDP per capita of China is $6,300
GDP per capita of USA is $42,000
Therefore at anything above your $350-$450 price, you can forget about any fundamental demand, as, they simply cannot afford gold at levels above this.
As the data clearly shows, jewellery fabricators cannot rely on mine supply for their entire gold needs.
And as the data clearly indicates, there is no requirement for it, as YOY, demand is falling, since 2004 Q4, it has fallen 37%
Gold mine production = 2,518 tonnes
Recycled gold = 800 tonnes
Central Banks = 552 tonnes
Total = 3870 tonnes
Total end use consumption = 3870 tonnes
Therefore, subtract 37% from 3870 and you have 2438.1 tonnes of total demand.
With total mine production totaling 2,518 tonnes, less, 2438.1 tonnes, we now have a
production surplus of 79.9 tonnes
If, production investment has taken place, to increase physical supply, then you will have a further overhang, and further price pressure.
Should producers start to reinstigate hedges, then the selling pressure will be sharp, rather than incremental...........Speculators can play the market both ways, and momentum could accelerate the downside.
Jewellery is basic to every known culture, and gold jewellery demand has been rising as both populations increase, and the wealth of populations increase.
But again this is not the whole story;
Over half of demand comes from rural or rural town areas. Demand here is largely traditional. It is affected by incomes and thus the quality of the monsoon is important. In these areas gold is also important as a means of saving – a gold chain or bangle which can be worn on the person is considered a relatively safe way of storing wealth.
In urban areas demand is more influenced by western tastes. Like similar markets, gold here faces competition not just from other forms of jewellery but also from the broader competitive set of luxury goods, electronics and consumer services. Promotion is thus important in order to maintain and boost demand
Without speculators, is there greater demand than there is supply?
The simple answer is no. Supply exceeds demand. Add in the speculators, and you still have supply exceeding demand, although it's pretty close.
Which really equates to therefore, speculation (speculative demand) currently driving the price. If speculative buying changes to speculative selling, then, $550 won't hold either, you'll be looking closer to $300+
The falling away of jewellery demand is world wide, save China.
Without the speculative demand, anaemia baby!
And this is in the face of reduced selling by Central Banks for timing reasons.
Should the Central Banks resume sales, not good for the longs.
jog on
d998