Gold and silver are lower again today with short term momentum traders taking advantage of recent weakness and capping of the gold price at record nominal highs. Options expiry often sees gold and silver prices fall but recover sharply within days of expiry and this is likely to be the pattern again after yesterday's expiration.
Market participants continue to underestimate the many risks and challenges facing the tentative economic recovery in hugely debt-laden western economies.
Absolutely nothing has changed with regard to the fundamentals of the gold market. The gold bears' most recent prediction of an end to the gold bull market was the non-evidence based, simplistic assertion that the increase in investment demand seen in 2010 and recent years was not sustainable. They asserted that falling investment demand would see liquidations in the bullion market and falling prices.
They are being proved wrong once again. Indeed, safe haven demand looks set to continue and may accelerate due to increased geopolitical instability in oil-producing regions, the effects of the Japanese crisis on the yen and the global economy and the unresolved European sovereign debt crisis.
The scale of the Japanese nuclear crisis has been downplayed from the beginning but the terrible reality of the extent of nuclear contamination of land and sea is gradually coming to light. Nuclear radiation has now been detected across Asia in China, the Koreas and as far away as the Philippines and Vietnam.
Asian households have been buying gold and silver bullion (primarily as a hedge against inflation) in record amounts in recent months and the natural and nuclear disaster in Japan will likely contribute to continuing safe haven demand.
Japanese premiums for gold bars remain at 3-year highs as Japan has seen safe haven demand for gold surge in the wake of their crisis. Japan looks set to become a net importer from a net exporter of gold. Indeed, Japanese demand on concerns about their bond market (see news) and currency debasement is another catalyst for gold to reach much higher prices in the coming months and years.
Asian demand is especially strong in the increasingly important China. The Chinese strong cultural affinity and love affair with gold (primarily due to a distrust of Chinese paper money) shows no signs of abating. Indeed, it may be accelerating as was seen in the recent figures from the Shanghai Gold Exchange and customs in China and now reports (including from CNTV - the national TV station of the People's Republic of China) of shortages of raw gold or unrefined gold.
China, now the largest producer of gold in the world is seeing its gold mines struggle to cater for surging Chinese demand.
The raw gold trade has been growing by up to 30% per annum and demand has leapt in recent months leading to a developing raw gold shortage in China. The industry in China expects only 27,000 tonnes of raw gold can be delivered this year. That is way below the estimated demand of 50,000 tonnes.
A potential supply shortage of 23,000 tonnes of gold is a large amount of gold in the small gold bullion market which is tiny versus equity, bond and derivative markets. It is infinitesimal when compared to the $4,000 billion a day traded in currency markets.
Indeed, this figure is difficult to fathom given that total above ground gold supply is only some 160,000 tonnes.
Some 'experts' have been calling gold a speculative bubble without establishing the facts since 2007. By discouraging the public from owning gold and discouraging even a small allocation or diversification, they have put their readers and the wider public at risk of further financial loss. A little knowledge is a dangerous thing and uninformed and biased advice will continue to lead to the public becoming impoverished financially.
Gold is trading at $1,413.20/oz, €1,004.05/oz and £884.08/oz.
Silver is trading at $36.70/oz, €26.08/oz and £22.96/oz.
Platinum Group Metals
Platinum is trading at $1,738.50/oz, palladium at $736/oz and rhodium at $2,350/oz.