This is a remarkable story. I am not calling for either higher or lower gold prices as this is a forecast-free blog. I will say that depending on how you interpret the facts, your outlook, bullish or bearish, may change.
The LA Times offers us an interesting look at the divergence between the activity of gold speculators and that of the buyers of real gold, be it coins or jewelry. The data is based on the third quarter 2009 versus Q3 ’08…
From the LA Times:
Data from the World Gold Council show that the surge in the metal’s price to record highs ($1,146.40 an ounce as of Friday) hasn’t been accompanied by record purchases of the real thing.
The council’s report put total global purchases of gold in the quarter that ended Sept. 30 at 800.3 metric tons, down 34% from the 1,205.6 tons bought in the third quarter of 2008.
Buying was down in the third quarter versus a year earlier in every major category of gold consumption, including jewelry (the biggest single source of demand), industrial use, coins and purchases by exchange-traded funds.
Now this can be a price-demand issue, higher prices for the raw material keeping buyers away at the retail level…
Gold bought as jewelry, for example, reached 673.3 tons in the third quarter of 2008, when gold’s price was mostly below $900 an ounce. In the third quarter of this year, with the price mostly above $900 and on its way to $1,009 by the quarter’s end, the amount of the metal bought as jewelry totaled 473.5 tons, down 30%.
Surprisingly, while the US Mint is continuing to produce, some major mints around the world are holding back:
Interestingly, the Austrian government mint is betting otherwise, at least in the near term: The mint, the world’s biggest producer of gold coins, recently said it planned to cut output by 32% in 2010, figuring that an improving global financial system will slash gold demand from investors.
An analyst from Kitco Metals is calling the rally in gold entirely speculative in the article. At some point, either the real buyers of physical gold come in to chase these speculative bets or the spec guys see their castle made of clouds dissipate.
Either way, the action going into the end of the year will be interesting.