Temporary" gold demand drop could bounce back with a bang

Europe debates huge increase in bailout fund while jewelers strike in India will surely end soon boosting demand there. These factors in combination could lead to major surge in gold demand.

Author: Julian Phillips
Posted: Friday , 30 Mar 2012

BENONI -

Over the last week we have watched the gold and silver prices move almost alongside the euro. Again there is no rhyme or reason gold should be linked to the fortunes of the euro. What we do ascertain is that short-term traders are dominating the gold price alongside investors in gold Exchange Traded Funds. The small tonnages being moved appear to be complimenting the ETF sales of gold. The Indian jeweler's strike continues to lessen the day-to-day demand for gold and reports indicate that central bank buying has been subdued of late.

We are also led to believe that this drop in demand from these sources is temporary and will return. In India, in particular, the demand level will return with a bang once the jeweler's strike is over.

Looking above at the long-term scene the fundamentals for gold remain intact and in themselves point to a jump in demand in the short to medium term. The prime reason for this is that the measures being taken to calm financial markets are temporary and not structural.

On today's agenda, for instance, is the boosting of the "Big Bazooka" bailout fund in Europe from €500 billion. E.U. leaders are saying this can be lifted to over €900 billion, but global financial institutions are calling for at least €1.3 trillion to cope with what might lie ahead from Spain, Portugal and Italy.

But we warn readers that when we see Spain cut €7 billion form the shortfalls and find they must cut another €50 billion more to reach their target levels before they can solve their debt problems, we can see that this will require a fundamental change in the Spanish economic structures, particularly government and regional government that their electorate may not stomach. The same could be the case in Portugal. So ‘bailouts' are simply throwing good money after bad. Then what? This remains gold positive!

Julian Phillips for the Gold and Silver Forecasters - www.goldforecaster.com and www.silverforecaster.com