If Gold Demand Is Up, Why Are Prices Still Down?

by | May 21, 2012 11:00 am

If Gold Demand Is Up, Why Are Prices Still Down?

Demand for gold grew 16% over the past 12 months to 1,098 tonnes, according to the World Gold Council’s Q1 2012 Gold Demands Trend Report. Globally speaking, that translates into a tidy sum of $59.7 billion in gold.

While 16% growth is impressive, today’s gold prices are still around 18% lower than their 52-week high. Why the discrepancy?

The May 5 trading session was the first in a while that gold has bucked the trend by going up when the S&P 500 (NYSE:SPY[1]) and Nasdaq-100 (NASDAQ:QQQ[2]) are down. Over the past several months, gold has traded in tandem with volatile assets like stocks (NYSE:SCHB[3]), industrial metals (NYSE:JJM[4]), and oil (NYSE:OIL[5]).

On the demand side, the gold market (NYSE:IAU[6]) has long relied on India (NYSE:INDY[7]) for consumer buying, but the threat of bans on imported gold could stop that.

China figures to become a bigger player in the gold market. China increased its gold holdings in Q1 to a record 98.6 tonnes, up 13% from Q1 2011. Can China be counted on to boost gold demand higher?

Chinese stocks (NYSE:FXI[8]) have lost 17.56% over the past three months and China’s real estate bubble (NYSE:TAO[9]) is quickly deflating. Will Chinese money flood into gold and push prices higher?

Europe’s sovereign debt crisis (NYSE:FXE[10]) adds another monkey wrench into the gold demand/price equation. Will Europeans start liquidating their gold to raise cash?

The ETF Profit Strategy Newsletter via its Weekly ETF Picks explains what’s behind gold’s demand/price discrepancies and how to be on the right side of the market. The right gold strategy begins with clearly identifying support/resistance indicators along with strict trading discipline. No major rally or sell off happens without taking out key support/resistance levels.

Endnotes:
  1. SPY: http://studio-5.financialcontent.com/investplace/quote?Symbol=SPY
  2. QQQ: http://studio-5.financialcontent.com/investplace/quote?Symbol=QQQ
  3. SCHB: http://studio-5.financialcontent.com/investplace/quote?Symbol=SCHB
  4. JJM: http://studio-5.financialcontent.com/investplace/quote?Symbol=JJM
  5. OIL: http://studio-5.financialcontent.com/investplace/quote?Symbol=OIL
  6. IAU: http://studio-5.financialcontent.com/investplace/quote?Symbol=IAU
  7. INDY: http://studio-5.financialcontent.com/investplace/quote?Symbol=INDY
  8. FXI: http://studio-5.financialcontent.com/investplace/quote?Symbol=FXI
  9. TAO: http://studio-5.financialcontent.com/investplace/quote?Symbol=TAO
  10. FXE: http://studio-5.financialcontent.com/investplace/quote?Symbol=FXE

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