A Gold Bulls Worst Nightmare

Since the Q3 2011 peak in gold prices, PM investors have had to combat numerous headwinds. Not only relative tightness by the Fed with tapering and eventual cessation of QE, but also disinflationary forces and a rampaging stock market, raising the opportunity cost of any investor long metals. But if there has been one trend on which gold bulls could rely - it was the almost perpetual acceleration in Chinese gold demand. Indeed between 2004 and end 2013, investment demand soared by a factor of 40, from 10 to nearly 400 tonnes. Jewellery demand more than tripled - from 200 to 669 tonnes. Central bank demand has also been on the rise - though the exact quantity is unknown. But recently, we've seen a slowdown in the pace of Chinese gold accumulation - with some even suggesting the market is 'oversupplied'. We're not so sure that's the term we'd use, especially with purchases highly correlated to rising incomes, and strategic reserves still so low. Instead, recent share market strength (see chart) may have been a factor. More details here (VIEW LINK)