If we now feed all of the above into the market we will see the gold market evolve into a far more price sensitive market with far less a seasonal influence to it. This brings the focus of the market back to the demand that the gold price itself inspires.
Investment demand is driven by the ‘big’ macro-economic picture with the Technical picture defining entry and exit points for these large investors. They do not see the $ as the defining value for gold. This type of demand has shown itself strong in Europe where investors see a € gold price. Likewise in other countries where the gold price is seen in the local currency. As the $ weakens against other currencies, investors gauge its future direction in local currencies not the U.S.$. So, for instance, in India the Rupee gold price has hardly moved, as the Rupee has appreciated 10% in the last few weeks. In the Rand, which has seen a 20% appreciation in the last few weeks the gold price has fallen. But investment demand globally is strong because of uncertainty worldwide.
COMEX speculators rely very heavily on the Technical picture. Demand on COMEX can come from outside the U.S., but only from the very well financially educated. This demand is primarily U.S. demand from short-term traders. They continue to believe that gold moves in the opposite direction to the $.
In the last few weeks it has been COMEX that drove the price from the low $900 to the high $900 regions. Long-term investment demand favors moving in on a rising gold price. Pure bullion demand is less actual price-sensitive and more trend-sensitive. Long-term investment came in at around $950 then slowed once a pullback started. COMEX backed off too as the Technical picture showed overhead resistance. Right now all are watching and consolidating prices between $950 and $990. How long will this take? We see the next move as happening fairly soon, well before the end of August. We see the drive coming from long-term investment demand, not COMEX, who will flee gold if they are left holding the baby.
Pure bullion demand will come in on pullbacks or in a continuous stream. Will scrap sales rise at this point? We think not, because that stream of supply has been flowing for several months now and has seen the tendency to rise irrespective of their sales. So both a natural slow in these supplies and the potential for higher prices will discourage scrap sales shortly.
The turning back of the gold price from $985 to $950 was not accompanied by new macro-economic news only by a rally in the $: € exchange rate, stunting COMEX demand. We are sure that the $ will not strengthen, but it may consolidate, so we don’t expect COMEX to drive the price higher at this point.
So our eyes turn to long-term demand and its next steps. How and when will they move forward?
