Has gold lost sight of its fundamentals?

Despite the stronger dollar index yesterday the Comex gold futures prices ended the day slightly higher, silver followed suit.

Many had expected a more negative reaction from gold, following the Fed minutes however elevated demand in Asia as well as geopolitical concerns have meant the price remains supported. It is also likely that tapering has been priced in already.

Many continued to suffer the brunt of currency wars, the rupee (as well as the Turkish lira) hit a record low against the U.S. dollar.  So far measures taken by both the Indian and Indonesian central banks to stabilize their currencies have not shown much success. Yesterday HSBC warned of the impact of a weakening rupee on gold prices yet they still expect demand to pick up ahead of Diwali.

Demand for gold bullion is also expected to remain high in Indonesia, some analysts believe it will climb to a four-year high this year to 40 tons, a 30% climb from last year. The country’s Indonesian Goldsmiths and Jewellers Association attribute this to the growing middle class.

Whilst interest in Egypt’s troubles appears to have subsided, markets’ attentions will no doubt be on alert for further developments in Syria.

Bullish for palladium

For those of you more interested in the more industrial end of the precious metals spectrum Barclays said in a note yesterday that they are looking for ‘limited’ stockpile shipments of palladium. Given the rumors that country’s stockpiles (kept secret by the government) are running low, Barclays believes this is likely to be an ongoing trend in the coming years.

Speaking of palladium, the platinum/palladium ratio is recovering from its 11-year low seen in July. Since hitting 1.9 last month, the ratio is currently around 2.02 thanks to platinum recovering somewhat.

Strike gold

Wage negotiations and strike threats continue in South Africa, disrupting both gold and platinum production. The National Union of Mineworkers is looking for a 60% increase in entry level wages. So far only 6% has been offered. Strikes could begin as early as the 28th.

Have they forgotten the gold fundamentals?

A survey of gold traders carried out by Bloomberg showed the highest proportion of bears since the middle of June, one week before gold went below $1,200. Despite gold’s gains in the last couple of weeks, few appear to attribute this to bullish sentiment. Instead they are looking to those U.S. speculators who closed out their bets on lower prices. They did not increase their bullish positions.

This may be so, we have acknowledged previously that the futures markets and those designed for speculation have a greater impact on price than those areas that just affect physical demand, but this does not mean that there are no key, bullish fundamentals driving the price.

Every day we have a new item to report on the staggering demand seen in Asia, ever month there is further news of central banks buying and every day the world’s major central banks pump money into the economy.

If those aren’t bullish fundamentals I don’t know what are.

About the Author
Jan Skoyles

Jan Skoyles is Head of Research at The Real Asset Company, a platform for secure and efficient gold investment. Her work and views are now featured on a range of sites including Kitco, GATA, lewrockwell.com and The Telegraph. She has appeared on news channels including Russia Today to discuss the gold price and gold investing. You can keep up with Jan's commentary by subscribing to our RSS feed Gold Investment News.

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