Gold: physical demand surges 53% in Q2, total supply down 6%, yet price falls 35%

Gold demand from India and China alone in Q2 was 310 tonnes and 276 tonnes or 586 tonnes combined. This demand alone vastly outnumbers the ETF outflows. Yet prices fell from $1,598.75/oz (closing price on March 29) to a low of $1,180.50/oz (closing price on June 28) – a very significant fall of 35%.

Today’s AM fix was USD 1,339.50, EUR 1,008.05 and GBP 859.37 per ounce.
Yesterday’s AM fix was USD 1,323.25, EUR 999.06 and GBP 855.53 per ounce.

Gold rose $13.30 or 1% yesterday, closing at $1,335.50/oz. Silver climbed $0.39 or 1.82%, closing at $21.84. Platinum edged up .2% or $3.24 to $1,500.74/oz, while palladium gained 16 cents to $736.66/oz.

Gold is ticking higher today after it hit a three week high yesterday. Silver climbed another 1%, its highest price in a month as the largest silver backed ETF, iShares Silver Trust, reached a four month high. Platinum hit its highest price in over two months and palladium also climbed.

Gold prices in India have risen this week, extending gains past their highest level in four months, due to the import duty hike and rupee weakness. India’s consumption of gold rose to 310 tonnes in the second quarter ended June, highest in the last 10 years, despite government curbs to restrict imports to rein in the burgeoning current account deficit. Contrary to expectations that gold imports may fall, India’s appetite for bullion may pick-up later in the year due to seasonal demand. Analysts say this could increase further illegal gold supply into India.

The SPDR Gold  ETF saw another day of inflows yesterday, this coupled with last Friday’s inflows hitting their most since June 10th added bullish sentiment as did the increased geopolitical risk in Egypt which appears headed for a civil war with implications for the already troubled region.

Gold bullion gained as data showed that global physical demand remains very robust.

The latest World Gold Council Gold Demand Trends report, which covers the period April-June 2013, confirms again how recent falls in the gold price were due to speculators selling paper gold rather than a decline in actual demand for physical gold.

It highlights, once again, that the price falls have generated significant increases in demand, most notably from store of wealth, jewelry, bullion coin and bar buyers  in Turkey, Dubai and the Middle East, Vietnam, India, China and the rest of Asia.

Meanwhile speculators, primarily banks and hedge funds, exited their positions in the gold ETFs and futures markets. This led to liquidations of just 402 tonnes of ETF gold worth only $18.3 billion.

Support & Resistance Chart – (GoldCore)

To put this number into perspective, demand from India and China alone in Q2 was 310 tonnes and 276 tonnes or 586 tonnes combined. This demand alone vastly outnumbers the ETF outflows. Yet prices fell from $1,598.75/oz (closing price on March 29) to a low of $1,180.50/oz (closing price on June 28) – a very significant fall of 35%.

Monday, April 15 alone saw massive $20 billion paper gold sell orders on the COMEX trigger stop loss selling and unfounded panic in the gold market.

Reports suggest that a futures sell order worth $6 billion, equal to 4 million ounces or 124.4 tonnes of gold, by a large investment bank sent prices plummeting. The futures market then saw a further wave of selling of contracts worth some $15 billion, equivalent to 10 million ounces of selling or 300 tonnes, in just 35 minutes.

According to the report:

Globally, jewellery demand was up 37% in Q2 2013 to 576 tonnes (t) from 421t in the same quarter last year, reaching its highest level since Q3 2008. 

In China, demand was up 54% compared to a year ago; while in India demand increased by 51%. 

There were also significant increases in demand for gold jewellery in other parts of the world: the Middle East region was up by 33%, and in Turkey demand grew by 38%.

Bar and coin investment grew by 78% globally compared to the same quarter last year, topping 500 tonnes in a quarter for the first time.  In China, demand for gold bars and coins surged 157% compared with the same quarter last year, while in India it jumped 116% to a record 122t. Taking jewellery demand and bar and coin investment together, global consumer demand totalled 1,083t in the quarter, 53% higher than a year ago.

For the tenth consecutive quarter, central banks were net buyers of gold, purchasing 71t, which reinforces the trend that began in Q1 2011.  

Demand in the technology sector was stable once again, totalling 104t, a rise of 1% on last year.

Meanwhile gold held in gold-backed ETFs, which in 2012 accounted for just 6% of the world’s gold demand, fell by just over 400t, driven by hedge funds and other speculative investors continuing to exit their positions.  This was predominantly in the U.S.

Overall, demand for gold in Q2 2013 was 856t, down 12% on a year ago.

On the supply side, recycling fell 21% in the quarter while mine production was 4% higher than a year ago, at 732t. In total, supply was 6% lower than a year ago.

All available data shows very strong supply and demand fundamentals and yet a huge, historic 35% price fall in the quarter. This lends credence to the allegations of market manipulation put forward by the Gold Anti Trust Action Committee, whistleblower Andrew Maguire, Max Keiser, Zero Hedge and many others in the blogosphere.