- The fall to $1,500 is only 16%+and would therefore not represent a change of trend to us.
- Should the price only fall to $1,650 it would be a correction caused by significant selling in the face of rising seasonal demand.
- A fall to $1,750 would be large buyers standing back and shaking out weak holders, who are, primarily, holding gold in the U.S. based SPDR gold ETF. They sold 50 tonnes last week.
U.S. Involvement in the Gold Market
The holders that sold gold from that ETF could be one of two types. Either a holder who took advantage of the sudden jump over $1,910 sold into strength heavily, as part of an ongoing sales program, or a broad spectrum of U.S. sellers, believing that neither inflation nor deflation is a future danger for the U.S.
Either way, buyers outside the U.S. welcomed the supply and absorbed the amount quickly. This resulted in the fall from $1,910 to $1,716 and then a race back over the $1,800 line again. The significance is that the price correction/consolidation is a movement of U.S. long-term holder's gold into central bank of Eastern demand hands.
What has been remarkable in the gold price rise is that U.S. demand for physical gold has been negligible. Compared to the original growth in the U.S. gold ETF the demand this year and last year has been modest against the initial rises in the holdings.
The behavior of the holdings has reflected not just the conservative nature of the fund but some of the investment policies of the investors. Take the holdings of George Soros. After taking his position he has decided that deflation is not a danger and has dropped his physical holdings in favor of gold shares. The switch appears reasonable in the light of the poor performance of gold shares relative to gold itself and the reality is that he did not drop his exposure to gold at all. But he remains invested in gold. The amount of buying to sell for a profit in the medium term is small and is expected to remain so. At these levels it represents less that 1% of the total investment funds in the U.S. (more)