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Peter Brimelow: China buying gold?

Section: Daily Dispatches

By Peter Brimelow
Thursday, April 12, 2012

NEW YORK -- Gold's rebound puzzles the bugs -- but they'll take it anyway.

It helps to have luck -- or something! Michael Gayed's brave column yesterday, "Was That the Bottom in Gold?," published just after gold closed with an impressive $16.80 rise in the CME June gold contract, was not followed by an immediate reversal. June gold closed today down only 40 cents, so the gains were held.

In contrast, my own recent cheerful chat about gold was followed by a horrible $57.90 drop in gold the next day.

Of course, I was just reporting what the investment letters say -- but I felt bad anyway.

... Dispatch continues below ...


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In fact, the important gold-positive news I noted -- that the strike by the jewelers in India, the world's biggest gold importer, appeared to be ending -- turned out to be wrong. The strike went on for another week. But it did finally end this past Saturday, after an extraordinary 21 days.

Observers in a position to know, like bullion dealer UBS, say that, while working through the disruptions caused by this unprecedented stoppage will take some time, they have seen demand from India returning.

Since India is in effect the default buyer on a gold downswing, this means critical underpinning is back in place.

But gold bugs were extremely puzzled by Tuesday's gain. I cannot recollect a move that drew so many frank statements of ignorance from the sources I regularly check.

Of course that does not influence the chartists. They don't care why prices move: Movement itself impresses them. Bullion dealer ScotiaMocatta’s Technical Commentary on Wednesday noted:

"Gold closed slightly lower today ... at 1658. The ability for gold to hold the 1656 level (the 50% retracement of the December to February up-move) and to close above the short-term bearish trend channel, is encouraging for bulls. Gold also clearly rejected the move down below the 61.8% Fibonacci retracement of the same uptrend. ..."

One hypothesis widely discussed, particularly on the hard-core gold conspiracy site LeMetropoleCafe, is that there is heavy buying by the Chinese, particularly China's central bank.

Some support for this thesis emerged on Wednesday. The website ZeroHedge reported:

"Hong Kong's gold exports to China in February were nearly 13 times higher than the 3,115 kilograms in the same month last year. ... Shipments were 72,617 kilograms in the first two months, compared with 10,564 kilograms a year ago or nearly a seven-fold increase from the record levels seen last year. ... The massive gold purchases may signal the People's Bank of China is continuing to secretly accumulate gold reserves."

HSBC contributed an interesting point:

"China is also the world's largest gold producer. This is the first time in history, to our knowledge, that the world's largest gold producer is also a major importer. This implies strong underlying demand, which we believe will help cushion further losses."

To return to the immediate problem of surviving the current market, the Got Gold Report provided important perspective this evening:

"... Since the Great Gold Bull began in 2002 gold has finished lower in two consecutive months 13 times, but has yet to finish lower for three consecutive months -- on a monthly closing basis. Gold only has to close below $1,668.60 on April 30 for this to be the first period of 3-consecutive months of lower closes."

There is still a lot of April left. Over at the Aden Forecast's GCRU report, they are (as usual) icily calm. Noting gold remains above its 65-week moving average of $1,600, it concluded its weekly commentary: "Keep your gold shares. They're solid companies. They've been disappointing but we believe our patience will be awarded as their time is coming."

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