Investment Demand Is Carrying The Load

Unlike earlier in the long-term gold bull market, this stage has been driven largely by investment demand. A Mineweb article explains the ramifications of the phenomenon.

Flat from 2000 to 2007, investor demand for gold picked up significantly from 2008. And, currently, is the dominant driver behind record prices seen recently....

GFMS MD, Paul Walker, says the strong demand is a reflection of the broader macro economic malaise....

Walker adds, that in calendar year 2009 roughly 50% of mine production found its way directly into investors' hands as opposed to into fabricated products. And, given the generally still very poor macro-economic backdrop across the world, "you have to start thinking to yourself there are some real legs in this rally and we could see it going beyond the levels we saw in 2009."

Near the end, there were warnings about what would happen if investment demand reverses and net liquidation emerges. Although not mentioned explicitly, the most likely effect would be gold shooting down below the price at which it should be, given non-investment demand plus current supply constraints, and then veer in on that price. From what I read, that price would be around $800.