And, of course, China and India are not the only countries consuming substantial amounts of gold.  As we have noted here (/mineweb/content/en/mineweb-fast-news?oid=260489&sn=Detail) the Russian central bank reckons to have picked up 150 tonnes so far this year, while other countries within the Russian sphere of influence have also been buying. 

Cumulatively demand elsewhere in Asia where the people have a propensity for hoarding gold has also remained at a strong level. Reports suggest that low gold prices have been stimulating substantial gold buying in the souks of the Middle East, although this is seldom quantified.

Yet still the gold price remains weak although it does seem to have made something of a recovery from its early November lows. As we have commented before, demand fundamentals look to be strong in the face of declining supplies. There have been some heavy recent sales from the gold ETFs, but these do not make up for the strong demand levels seen elsewhere and scrap gold levels appear to be falling to well below 2013 levels.

Thus, the fundamental figures suggest that the gold price should be rising with demand exceeding supply. But the futures market still appears to be controlling price levels and we are again seeing strange dumpings of paper gold into the markets at odd trading hours which do look to be an attempt to keep knocking the price down. But with the draining of physical gold from Western warehouses, and its moving primarily into stronger Eastern hands, one suspects that the scope for keeping a lid on the gold price is reducing all the time. As we have said before, the worst may not be over yet for the gold investor – there are powerful forces keeping prices depressed and forcing the lower – but when the true turning point arises gold’s recovery could be fast and very strong indeed driven by a severe shortage of physical gold in the West. As always, it’s a question of timing and that is not easily determinable.

David Fuller's view

This is an accurate description of what is going on.  Gold has been the plaything of investment banks – the “paper gold” referred to above, working in concert ever since we first hear the forecast of ‘$1000 by the end of 2014.’  As I recall, that target was first mentioned last year and has been repeated ad nauseam, with considerable success.  Westerners had little reason to buy gold, which was out of favour while bond and many stock markets were booming.  Moreover, technology has made mining vastly more efficient, delaying the reduction in new supplies of bullion. 

Gold bears have been squeezing out ETF long traders, who are mainly westerners and not the historic buyers of the yellow metal.  There is no evidence that this long liquidation of ETF gold holdings is over, as this is a lagging indicator and would need to be rallying above a rising MA to confirm a return to a demand dominated environment. 

Nevertheless, short sellers of gold futures are becoming less confident, if not outright nervous, evidenced by some considerably more bearish forecasts in recent weeks.  These are usually issued to bolster spirits among those who are trying to push the market even lower as risks are rising.  They are nervous for good reason because the historic value buyers of gold bullion have increased their purchases.  Therefore gold bears are now selling into the equivalent of a bag.

The recent upward dynamics for gold, starting with that big key day reversal off the low, are encouraging but far from conclusive on the weekly chart.   

Lastly, is Russia buy gold to bolster its weak Ruble, shown inversely against the US Dollar?  I certainly hope so, although it will not work, given the country’s reckless and dangerous pariah government.  My concern is that Putin may be using an old Soviet trick – buying gold before a major military coercion, capable of boosting the price and at least partly financing the aggression.