Golden paradox: demand surges as price falls

Gold purchases have surged, according to new official figures. Why then are prices falling? This is impact of the paper market for gold futures. Once big funds stop dumping this paper then it is clear that a huge hike in the gold price is coming, as the physical market will then set the price and demand here is well ahead of supply. The Telegraph reports today:

“The onset of a global recession and falling stock markets have triggered a stampede for gold – the traditional safe haven during times of uncertainty.

According to the World Gold Council, exchange traded funds are the main beneficiary of the flight to safety. ETFs experienced their strongest quarterly inflow during the third quarter since SPDR®Gold Shares – the first gold ETFs – were launched in November 2004.

But the Council added that bullion dealers around the world reported an unprecedented surge in demand for coins and small bars. It said that there had been reports outright shortages of gold and high premiums over the gold spot price.

The US Mint temporarily suspended sales of American Buffalo gold 1 ounce coins after its stocks were depleted, while UK, German and Austrian coin dealers have also reported an enormous increase in demand during the third quarter, it added.

The average gold price edged down slightly between June and September, to $870.88/oz, from $896.11/oz in the previous three months. Gold traded as high as $986/oz on July 15, the day after the US Treasury and Federal Reserve Bank announced plans for a joint bail-out of mortgage giants Fannie Mae and Freddie Mac, but fell sharply later in the quarter to a low of $740.75/oz on September 11. This proved short lived, however. By the end of the quarter, the gold price had rebounded to $884.50/oz.

Yesterday, gold was trading at $729.20 an ounce after hitting intraday low of $718.20 — its lowest level since September 2007. There is an increasingly wide range of methods available to investors wanting to buy gold or gain exposure to gold price movements – from gold coins to complex structured financial products.”

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