Your charts show the same fundamental data available on Kitco's total demand chart, except Kitco's presentation also shows a total supply chart.
It may seem somewhat strange that price can advance when supply positively diverges from demand, but one has to remember that price is set at the margin where psychological factors can have impact. Gold price has had to rise to repair mining company ability to supply so that in the physical market marginal supply could balance marginal demand. And, it is true that rising price has exacerbated the divergence driven by public fear and which makes holding dangerous.
On the demand side ETFs, primarily, GLD, are grabbing the lion's share of growth while the physical market languishes. One might conclude that that shows increased investment demand rather than increased physical use demand, but ET flow shows that GLD is being used to hedge physical. The strategy is this: an institution buys bullion in some physical or pseudo physical form either in raw bullion, coin, or nearby forward contract, and hedges physical by selling GLD short. This makes ET flow for GLD negative while flow for bullion shows positive. However, the net flow of these two in perpetual hedge has been negative for several years. Recently, the net flow has gotten so negative that it's clear the nominal price strength is being used to distribute since the first 6 - 7 years of the last 10 of POG advance had shown huge private accumulation.
Durng the period of accumulation investment demand was strongest. Confirming this observation is the negative gearage between physical and GLD. That's precisely what happens when a hedge gets excess participation.
So who's on the long side of GLD? Sucker public which is speculating on price, not investing, even if they hold, because they'll jump en mass if bullion comes in. They use GLD because of bullion commish: coin shop bullion or coin, bids 1100, asks 1300, last 1200.
The accumulators of gold below $700 are now distributing, and they're using public gold fever to do so because the public provides the firm bid which enables size to be dumped. CBs are buying this distribution too because they can get size without concession, and can get presence without disruption. |
