At the launch of our Perth Mint Certificate Program Approved Dealer GoldSilver Central today the journalists were interested in the views of Raphael Scherer of Degussa and myself on the gold market.
I made a bottom/buy call on 18 September and the price subsequently held above $1180 and has strengthened since then. It is worth noting that not long ago the narrative around gold was quite negative, even in respect of China demand (see here for an example). In that article a dealer was quoted as saying that Chinese buyers "could come back to the market if prices fall below $1,200 an ounce." This has proven to be the case, as the Perth Mint saw kilobar premiums rise once the price breached $1200 on the downside (see here) as interest returned and volumes were up.
I would note that since my September 18th post there has been many more tonnes of kilobars withdrawn out of Comex warehouses (don't have the figures or charts to hand here in Singapore, but will update when I get back into the office). However, while the $1200 level has proved to draw out interest and gives me confidence that the $1180 level is a firm support point, I would have to agree with this comment that "Asian physical demand doesn’t look strong enough to act as a major catalyst to drive the gold prices higher" at least at this time, as the Perth Mint did see premiums reduce a bit as the price moved up above $1220.
Indian demand is still being throttled, as we saw with calls to retighten import rules in response to the surge in gold imports in September. Smuggling is making up some of the shortfall, but increased policing is making an impact, with courier fees increasing from $245 to $470 a kilo (approx 1.2% "risk premium") as this Reuters article explains. FYI, I have heard reports that some importers are getting around the 80:20 rule by making cheap value added product and then after exporting it, just melting it down as this gives them the right to then import 80% (part of which is the melted gold). This "arbitrage" is unlikely to last, given the Indian government's anti-gold stance and I'm sure we will see a crackdown on this in the future. So I don't think we can rely on India to save to day, so to speak.
On the positive side, I have seen more articles discussing the fact that current prices are around mine cost. This from Saxobank's CIO "there is growing belief that the “narrative of the central banks” is failing" - it seems Ben Hunt's work is getting more exposure - is positive as I think mainstream investors are not buying gold because they believe the government can fix the economy's problems. If that narrative is challenged, then we will see a renewed interest in gold. While Ben Hunt feels that we are "on the precipice of that breakdown in confidence. A cold wind of change is starting to blow" I think such a change in the belief in the power of central bankers will take some time to unwind, as Ben himself says, noting that the "collective solipsism of modern markets is a much bigger game still, and will require a much larger shock and external social structure to unwind the Common Knowledge structure at the heart of all this".
In summary I think we have a formed a firm bottom but gold needs another catalyst to drive it higher and is mostly relying on US dollar/economic weakness at this time. Maybe it is just a case of gold needing to consolidate at these levels: the longer it holds above $1180 the more the bearish calls for $1050 or whatever begin to lose their credibility and then we have the "space" for a more positive narrative about higher gold prices to form.