Demand for gold is one thing to look at but the other essential part of the equation with metals is supply - mines are expensive and time consuming to build. When it comes to the precious metals there is also monetary demand as some Central banks look to increase their gold reserves as a hedge against currency weakness. The Gold producers have been closing forward contract sales of gold over the last few years and this has accelerated during 2007 as giant losses mounted. The biggest operators in the industry are closing these hedge books with loans, early physical supply of gold and out of revenue.
It’s impossible not to conclude that central banks, commercial banks and wealthy individuals have, are, or will attempt to manipulate gold prices -it is in their interests. For central banks, it has been done in attempts to wean investors off the idea that gold is money and onto the concept that government-issued currencies are the only real money.
Chinese buying of gold in a big way can also be a form of manipulation. We will never be given accurate statistics on Chinese gold buying unless it suits them for us to know. What’s clear is that they have managed to acquire between 2,000 and 2,800 tonnes of gold in 2013, while the price of gold has been dropping.
In the recent times, impelled by the sentiments from the announcement of the US Federal Reserve to scale back its controversial monthly bond buying program, commodities across the globe are trading mixed. The Federal Reserve Chairman Ben Bernanke in his last FOMC meeting yesterday said that the US apex bank will reduce the pace of its asset purchases to $75 billion from $85 billion a month, starting from January 2014. Spot gold extended previous day’s southward action and dropped to the lowest point in six months, breaking the psychological level of $1200 a troy ounce.
Is spite of the sharp drop in the gold prices I feel that the bulls are eventually going to win over bears amidst weakening dollar and increased hedge demand from currency traders and Central Banks. The best time to buy gold is when the market hates it. As per my analysis the global market is having a very firm support a $1168 a troy ounce and has good potential to shoot above 1250 in the coming 3-5 weeks.