Contrary to some reports of poor physical gold demand, the latest gold price falls seem to have yet again stimulated big demand on at least three continents.  It may have already led to arresting the recent price falls but can it do even better for gold?

In the US very strong gold coin sales have been reported by the US Mint.  In China the latest reported week of Shanghai Gold Exchange withdrawals were simply enormous for the time of year.  India too is reported to be seeing strong demand at the lower prices.  And in Australasia the Perth Mint has stated that it has been unable to keep up with demand.  No doubt European demand for physical gold in coin and bar form will also be running very high, although we haven’t seen any official figures to confirm this yet.  Perhaps the physical demand is at last leading to shortages of available gold and pushing prices higher again – or at least arresting the fall – despite virtually every mainstream gold analyst talking the gold price down.  Indeed many bank analysts have been suggesting falls of $100-$200 or more from the current gold price level. It would be a brave financial analyst to see things differently in the face of consistently negative forecasts from virtually all his/her peers.

Let’s take the US Mint’s gold coin sales figures first.  Announced July figures show that the Mint sold a very large 202,000 ounces (6.28 tonnes) in gold coins – the highest figure since April 2013 and the third highest monthly total ever.  Demand certainly seems to have been stimulated by the lower gold price which dropped below $1,080 an ounce on the spot market at one stage.  Gold closed at $1,095 an ounce this weekend.  And silver coin sales were also huge – particularly given that the Mint suspended sales for nearly three quarters of the month due to lack of sufficient supplies – at 5.53 million ounces.

In China, the latest reported week of flows out of the SGE – the week ended July 24^th – also saw the third highest weekly gold withdrawal figure on record at 73.3 tonnes – and this at a time of year when Chinese gold demand is usually at its weakest with normal levels less than half those announced.  In short it was thus a phenomenal week on the SGE, even if not a record.  As we always point out there are arguments put forward against SGE withdrawals correlating to Chinese demand, the latest argument against coming from GFMS in its Q2 gold report, suggesting (See Mineweb article: GFMS ‘curate’s egg’ gold report) that this has been down to ‘cash-strapped Chinese jewellery fabricators having to offload their inventories at attractive discounts, either to their competitors or directly to smelters. They then refine the gold pieces into bars and eventually this will flow back to the SGE, helping to inflate SGE its turnover by comparison with physical offtake. Whether there is concrete evidence of this, we don’t know.’  Be this as it may, SGE withdrawals, however they are made up, are a great indicator at least of overall Chinese demand and sentiment towards gold, as well as indicative of the huge gold flows into the Asian Dragon.  Even in an economic downturn China remains a hugely significant market for physical gold.

In Australia, the Perth Mint which does significant trade in gold and silver bullion coins and bars, and has been doing so for more than 100 years, says it is having trouble keeping up with demand, the restriction being the amount of unrefined gold coming in from the mines – and don’t forget Australia is the world’s second largest gold producer after China.  Nigel Moffatt, the Pert Mint’s Treasurer, has recently said on Bloomberg’s TV channel, “everything we get in is going straight out the door as soon as we refine it.”

India has just published its May gold import figures and this was back to 2011 and 2012 levels – a year when it was arguably still the world’s largest gold consumer.  May imports totalled 96.1 tonnes  excluding smuggled gold which reports suggest may have been running at significant levels given the 10% import tariff remained in place.  Taken together with China’s gold demand as represented by SGE May figures volume for these two countries alone for the month came to 296.55 tonnes according to Nick Laird’s sharelynx.com website , which monitors a huge amount of data and presents it in graphical form – comfortably more that the world’s total new monthly mined gold production that month which will probably have totalled around 270 tonnes.  (See GFMS reservations about SGE withdrawal figures above)

So, we’ve covered demand in Asia, North America and Australasia.  One doubts that the phenomenon is absent in Europe.  The Greek effect may not yet be over and in the past, the Germans and austrians have tended to generate strong demand in times of economic uncertainties and these are continuing within the Eurozone.  The low gold prices will probably have also stimulated demand – we do see evidence of this in statements from bullion dealers.  While mainstream analysts may be looking for further sharp falls, but the old adage ‘buy when there’s blood in the streets’ may well be coming into play.  Maybe we haven’t reached the bottom yet.  Thoes using the futures markets to drive prices lower may not have exhausted their ammunition yet, but someone out there does appear to be trying to stabilise the markets.  Julian Phillips, writing here, has suggested it might be China.  Given that it has been encouraging its citizens to buy precious metals, the Chinese government  may be keen to prevent further drastic falls, just as it has appeared to intervene to halt the recent stock markets crash there.

Perhaps gold is bouncing along the bottom.  This is generally a quiet time of year for the precious metals markets – so maybe we will get a better indication of where gold and silver are heading when New York’s bankers and institutional managers get back from sunning themselves, and from whatever else they get up to, in the Hamptons or further afield.  We’ll no doubt start to see in just over a month’s time.  Until then opportunists may try to take advantage of thin markets so we could be in for a month of price volatility.  Fed interest rate raising may be a bit of a red herring – surely this has been built into the price decline already?  It certainly should have been.  But all the time physical gold is flowing East