Physical Demand in Gold Matters

In the wake of the plunge off the cliff, gold has now managed to move higher in seven of its last eight trading sessions.  It has just moved above the 50% retracement ($1,456) of its most recent move down and with its close above this area today, it is looking technically strong in the short term.   Gold ETF liquidations remain sizable but short covering and unprecedented physical demand have allowed gold to rally impressively off its low last week of $1,320. 

 

Physical demand in the US is reaching frenzied levels.  In the month of April, the US Mint hit its highest level of gold eagle sales in nearly three years.  So far in April they’ve sold 179,000 of the 1 oz gold eagles.  Including fractional coins, they’ve sold 201,000 ounces worth of gold in April and these figures will likely go up as the month draws to an end.  To put the demand in perspective, the US Mint’s April gold sales figures are over three times that of March. 

 

While demand in the US is exceedingly strong, it still pales in comparison to the demand being seen in Asia right now.  India has a combination of a much lower spot price, no secondary supply, and looming festival demand.  In China, local miners are withholding production in hopes of higher prices while the Shanghai Gold Exchange premium vs. the London spot price has exploded.  The SGE traded at a whopping $65 premium over OTC (Over The Counter) gold before finally settling at $30 last night.  This arb was trading at below $10 a few weeks ago.  It is also interesting to note that Shanghai physical volume has eclipsed ETF redemptions over the past two days.   Physical demand is starting to matter once again…