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Physical Market Continues To Show True Value Of Gold

Posted: Jan 11 2011     By: Dan Norcini      Post Edited: January 11, 2011 at 9:27 am
Filed under: Trader Dan Norcini

Dear Friends,
Throughout the entirety of the now decade-long bull market in gold, it has been the physical market where the real deal is bought and sold, that has been the arena in which the true level of “value” has been found and not the phony paper market in New York known as the Comex.
Time after time we have seen the speculative trading funds get loaded on the long side of the gold market taking it up another leg higher but then their buying has met up with selling resistance which they have been unable to breach. The result has been a temporary stalling in price which has then moved lower as these same funds liquidated longs and began reducing their long side exposure.
The big buyers from the East have awaited these bouts of speculative selling as an opportunity to secure the metal at a lower price which has then served to put in a floor of chart support allowing a period of base building to commence which has then preceded the next leg higher.
With that in mind, please see the following story that came down the wire feed last evening from Dow Jones concerning the demand for gold hitting the Perth Mint of Australia. It is this kind of demand which is going to make life extremely difficult for the gold bears should it continue.
As said previously, the pause in the gold market does not look like that associated with a trend change but rather a lull in speculative buying as some indecision and uncertainty enters the psyche of traders. That lack of buying has allowed prices to drift lower which is being met with very strong demand as reported by both this story and JBGJ. If bears begin to get stymied in their efforts to take price below $1365 and hold it there for an attempt at $1340, they are going to be forced to cover.
Once again it appears the battle for middle Earth has been joined.
DJ Physical Gold Demand Exceeds Current Availability -Perth Mint Tue Jan 11 01:26:37 2011 EST
SINGAPORE (Dow Jones)–Demand for gold bullion from Australia’s Perth Mint has been unrelenting since gold’s price dropped below $1,400 an ounce, a senior Mint official said Tuesday.
"At the moment demand is such that we cannot meet all the enquiries that we are getting," said Nigel Moffatt, Treasurer of the Perth Mint, one of the world’s largest gold refiners and distributors.
"Demand for our coins and medallions is strong, but the biggest demand is coming from banks and traders looking for kilo bars," he told Dow Jones Newswires.
One-kilogram bars are the most popular trading instrument in Asia’s physical market.
Demand doesn’t appear to be directly related to the upcoming Chinese Lunar New Year, with buying also coming from in from India, Moffatt said.
"The way I see it at this point, it is because of the current correction in the price rather than anything else," he said.
Spot gold has declined 3.1% since the start of 2011 to $1,376/oz during Asian trade Tuesday after hitting a low of $1,353/oz Friday.
Moffatt said premiums for physical gold had "doubled" in the past week, but declined to provide any figures.
Mitsui Global Precious Metals said in a report that gold was trading at premiums of up to $3 an ounce over the spot price in Hong Kong Monday.
-By James Campbell, Dow Jones Newswires, +656415-4082;
james.campbell@dowjones.com