Asia is witnessing one of the strongest waves of physical gold buying in 30 years, with bargain hunters using the drop in prices to secure jewellery and gold bars.
The feverish buying has left many of Hong Kong's banks, jewellers and even its gold exchange without enough yellow metal to meet demand. In Shanghai, the gold exchange saw volumes - often seen as a proxy for demand - rising to a record on Monday, while queues formed outside some jewellery shops in Beijing.
"Physical markets have responded to the much cheaper gold price levels," Joni Teves, precious metals analyst at UBS, said in a note to clients. "Our physical flows to Asia have been particularly elevated this week."
The surge in buying across China, Hong Kong, India and other Asian countries contrasts vividly with heavy selling last week, when financial investors dumped billions of dollars of gold-related assets. The strong Asian buying has provided support for global gold prices. On Monday, the cost of the metal rose to $1,438.66 per troy ounce, up 8.1 per cent from the low set last week.
David Fuller's view Technically, gold's bull market ended with
this month's earlier plunge. However, the yellow metal had been losing uptrend
consistency since its last rally to nearly $1800 in early October 2012 (weekly
10-Yr, 5-Yr & daily).
I assume that central bankers engaged in massive quantitative easing (QE) programmes, led by Mr Bernanke at the US Federal Reserve, will be delighted by the fall in gold's prices. In contrast, had gold been trading at $2000 and rising, some people would interpret it as a harbinger of inflation. I also assume that central banks in creditor nations will be delighted that they can now buy gold more cheaply. Presumably, plenty of private investors in China, India and many other countries feel the same way, although they may not jump in immediately.
My own hunch is that although gold's bull market is clearly over for a while, the yellow metal will be reaching new highs against all fiat currencies well before the end of this decade. However, this can only be a hunch because there is currently no technical evidence that gold will resume its advance in the next few years.
Nevertheless, gold remains hard money over the long term, due to its unique qualities and because its supply cannot be readily increased. If this were not the case, the central banks of creditor nations would not continue to stockpile bullion. However, gold's price moves, instigated by people, are volatile and therefore an unreliable store of wealth over the short to medium term, as we have recently seen.