However, the supply demand data clearly shows that ETP liquidations are being matched by robust global demand, especially in China. Even if ETP holdings dropped by another 300 plus tonnes in 2014, average Chinese imports through Hong Kong alone are running at well over 100 tonnes per month.
Outflows of gold from ETFs amounted to 24.3 million ounces, nearly 700 metric tonnes, in 2013 from their peak at the end of 2012. Much of this gold was taken out of ETF holdings in London and shipped to refineries in Switzerland, where it was melted down and made into kilogramme bars, then sent to Hong Kong and ultimately to China.
Imports from Hong Kong to China totaled 26.6 million ounces or 754 metric tonnes through September alone. It is unknown where the gold would come from to replenish these ETF holdings were there a sudden surge in demand in the West in the event of a new sovereign debt crisis or a Lehman Brothers style contagion event.
Despite the 26% fall in 2013, gold is 44% higher in the last five years and has protected those who have bought it as a long term hedge and financial insurance against macroeconomic, systemic and monetary risks.
There is much negative noise and sentiment towards gold due to the recent price falls. The smart money ignores this noise and continues to focus on the long term. We are confident that gold will again perform well in the coming five years and protect investors from the considerable risks lurking out there today.
It is worth noting that gold fell 25.2% in 1975 (from $187.50/oz to $140.25/oz) and many experts pronounced the death of the gold bull market. Experts such as economist Milton Friedman warned that gold prices could fall further.