Physical Gold Shortages As Investors Become Net-Buyers

The weekend’s papers have been full of articles asking if the last week had signalled the end of the gold bull market. Not once were companies that provide allocated gold investment to private individuals, such as The Real Asset Company, asked for a comment. Had journalists asked they would have realised that for the majority of private gold investors out there, the answer is quite simply ‘no.’ We have seen net-buying on our platform, as have our competitors.

This was something we tried to make clear when we were asked for interviews with Newsnight and Al Arabiya – the gold price last week was better than the week before, it was much lower, and the majority of physical buyers know this – using it as an opportunity to buy gold.

Despite the fall in the gold price it seems the majority of hedge funds, traders and individuals are still bullish about gold’s future. The US Mint’s sales of gold American Eagles surged eightfold this month from a year ago, whilst Bloomberg reports ‘fund managers and other speculators increased net-long positions in gold by 9.8 per cent to 61,579 futures and options in the week ended April 16.’

Gold demand has been so strong in some parts of the world that there are reports of gold shortages. Over in Dubai the World Gold Council reports that there is a shortage of gold coins and bars. In China and India the WGC reports that premiums placed on gold are not enough to put buyers off. Reports such as these, and from our own online gold investment platform, show that whilst the drop in the gold price was down to short-term profit grabbing this is in stark contrast to long-term investors who still see gold investment as a sensible bet.

Aside from Cyprus’s gold issues, other countries are still keen to hang on to gold, particularly in Switzerland. On Thursday last week the federal chancellery confirmed a referendum would be held ‘that would ban the central bank from selling its gold reserves and force it to keep at least 20 per cent of its assets in the metal.’

Today we have, so far, seen the gold price climb for the 5th day in a row – its longest rally since the beginning of the year. Silver is also climbing.

This week the Bank of England may feel pressure to further increase their actions to revitalise the economy, once GDP figures are released. Markit estimate a 0.1% expansion, which will barely register given GDP fell 0.3% in the final quarter in 2012.

Over in the US, expect to see gold fall as GDP data (also released this week) comes in strong, analysts expect to see anything above 0.4% (annualised pace for 2012). However, budget cuts and increased taxes are now beginning to feed through to the economy and may lead to some disappointing data.

Economic trends for the second quarter will become a bit clearer as flash PMIs for the US, China and Eurozone are released on Tuesday. Flash PMIs in March showed a deepening recession in the Eurozone, whilst manufacturing had picked up in both China and the US.

Bear in mind, Draghi has said that the ECB is ‘ready to act’ should economic data continue to disappoint. Worries that Cyprus’ bail-in has set a precedent for the Eurozone of austerity and no more money printing can, perhaps, be put to one side.

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