Gold market has room for upward swing

摘要

Despite not being justified by demand-supply fundamentals, with huge funds still flowing towards gold, the market has room for an upward swing. This also implies that price could fall rather sharply during the correction phase. If any further evidence of gold prices moving away from what may be justified by market fundamentals was needed, a recent analysis provides it. The gold market was in sizeable surplus of 196 tonnes in the first quarter of this year. This was excluding producer de-hedging (which is mainly on paper). Even after including de-hedging, the market was in a surplus of 36 tonnes. Mine supply growth (up five per cent year-on-year) and old scrap sales (up 51 per cent) countered slower official sector sales that fell by 57 per cent. Total demand fell by around 16 per cent year-on-year. This decline in demand translates to a still large 11 per cent loss when placed against last quarter of 2005, when the surge in price strength and volatility already had an adverse impact on demand.