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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Weak Indian Demand May Soon Impact Gold Prices

101 Bars

Incredible numbers this week on gold demand. Coming out of a nation that’s supposed to be the world’s top consumer — but is showing hardly any buying right now.

India.

Preliminary reports suggest that May was another very weak month for India’s gold demand. With Bloomberg citing familiar persons in the finance ministry as saying that May’s gold imports totaled just 31 tonnes — a drop of 51 percent from year-ago levels.

That would come after India’s gold imports dropped 67 percent in April — to just 22 tonnes. Showing that gold buying is incredibly sluggish right now.

In fact, sources in India’s jewelry sector were quoted as saying that there is “hardly any demand” right now in this key consuming nation. A fact that seems incredible in light of the recent strength in the gold price.

But in fact, it may be exactly because of gold’s strength that India’s consumers are staying away.

I have to thank long-time reader Tim here for recent discussions. With his experience at the heart of London’s gold industry shedding some critical insight on today’s market action in India — and beyond.

As he pointed out, gold demand in Asia’s big consuming nations like India and China has historically always tapered off when gold prices rise. With buyers here unwilling to pay higher rates — instead choosing to wait to see if prices settle back. Related: Grid Outages Are History With This Texan Innovation

Price rises in gold therefore, are not generally caused by such physical buying. But rather by investment demand from the financial sector — with that group of buyers driving up prices during times when gold is viewed as a needed hedge against risk.

In effect, bankers set the gold price — while buyers in places like India set the floor. That is, they will buy gold on any significant dips in price, keeping the metal supported at a certain level.

The really interesting thing however, is that India’s buyers must eventually return to the market. With such consumers traditionally throwing in the towel if prices stay high for a year or so — at which point they give up hopes for a drop, and wade back into the market.

All of which suggests that the current weakness in India’s buying could turn to strength — if we see gold stay near current levels through the rest of 2016. Watch for trading action over the coming months, and for a potential uptick in India’s buying toward the end of the year.

Here’s to picking your moments

By Dave Forest

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  • TomGold on July 04 2016 said:
    That prediction was wrong on several levels.
    Turned out India and other countries just kept the gold accumulation on the quite.
    Gold continued to climb.
    Now with the likelihood that Japan's currency may fail, as its largest retirement fund is now failing, gold prices in countries outside the US is soaring. Gold is much better than a negative bond rate.
    Gold and gold mining surpassed Wall Street in 2016.
    Silver.... is much higher.

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