Worrisome News on Gold Demand

I have long assumed that the plunge in gold prices would bring physical buyers (jewelers, mostly) out of the woodwork. But now the market may be SO volatile that shell-shocked buyers are sitting on the sidelines. From this story...

Ongoing volatility in the price of gold and silver has subsequently forced physical buyers back to the sideline to wait for some semblance of order to return to the market. Physical traders and jewellers caught short below US$600/oz were wary of further price appreciation and purchased gold all the way to its highs of US$730/oz, only to watch the market correct back to US$545/oz within one month.

"Throughout the Middle East, where large drops in the gold price typically trigger heavy demand for the metal, there has been no such activity," says Hunter. "A possible explanation for this lack of buying interest is reduced cashflow caused by the panic buying over US$700/oz, margin calls against outstanding loans and large declines in regional stockmarkets. A further factor is the speed of the decline from US$731/oz which has prompted many to expect further losses in the near term."

Meanwhile, Asian markets remain in suspended animation as gyrations in precious metal prices continue to confuse and confound physical players throughout the region. Recent stability around US$570/oz has seen the beginnings of physical demand return to the market, however many players are still reluctant to buy at these levels for fear of further losses.

How long will this go on? Or is it ending already? I've been pleasantly surprised by gold's strength over the past few days, and a lot of gold stocks I'm watching seem to be forming solid bases. But is it a solid base or another sucker's rally? Ah, these are the questions that we ponder. Meanwhile, the list of stocks I want to buy at the bottom has grown as long as my arm!

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