Recent ETF Drops Made Up For By Physical Demand, Particularly In India And China

Although reversing now, the SPDR Gold Trust ETF (GLD) has disbursed a fair bit of gold earlier in the year. On the other hand, demand for physical in two important gold-consuming nations - India and China - is thriving. Gold buying has become trendy in both countries.

The first page of a Commodity Online article, "Gold coins, bars glitter as Gold ETF demand wanes," elaborates upon that trendiness and the innovations sellers are coming up with to encourage more buying. On the second page, which notes that ETF demand has shrunk to the tune of 15 tons worth of outflows this year up to mid-March, it's also noted that the resilience of gold's price has to come from other demand as supply is too inflexible to be cut off quickly enough.

[T]here is some evidence that Jewellery demand is picking up. The Bombay Bullion Association puts Indian imports of gold in February at 35t, more than four times the level of February 2009. Industrial and electronic demand might be recovering faster than we expected. Dehedging in Q1 2010 is likely to be limited, now that Barrick have closed out their book, but it was also very slow in Q1 2009, so on a year-on-year basis this might be a positive factor.

Yet even if we take the most negative view on supply and the most positive on demand these views are still not able to account for the shortfall in ETF demand. Perhaps then there, is another major factor bringing the market into balance, even at these prices? Is there a central bank purchase we do not know about? Has investment moved from the easily visible exchange-traded products to less visible bars, or even to a classic under-the-mattress purchase of coins?”

Although the central-bank speculation seems a bit of a reach, the other questions are good ones. Bars and coins? Maybe...