MarketWatch First Take

Sep 3, 2009, 1:44 p.m. EST

Third time a charm?

Commentary: Sentiment data supports gold breaking through $1,000

By MarketWatch

ANNANDALE, Va. (MarketWatch) — Sentiment analysis suggests that gold’s current assault on the $1,000 barrier will be more successful than the two other occasions this year in which it tried and ultimately failed.

As of early-afternoon trading in New York, in fact, spot gold was trading around $992, just $8 away.

1,00095090085080009FMAMJJAThis optimistic assessment is based on the skepticism with which gold’s recent strength has been met. There is a lot less enthusiasm about gold today than there was in February, when spot gold just barely got above the thousand barrier and closed as high as $1,001.70 before falling back, and early June, when it only got as high as $983.20.

And, as contrarian analysts like to say, a bull market likes to climb a wall of worry.

Consider the average recommended gold market exposure among a subset of short-term gold timing services tracked by the Hulbert Financial Digest. During gold’s February assault on the thousand dollar barrier, the average gold market exposure among these gold timers got as high as 61%. During early June’s, it got even higher, 65%.

Right now, in contrast, even though gold is trading for higher than it was in early June and almost as high as it got in February, the gold timers’ average exposure is no where near as high — just 25%, in fact.

Why are these timers so much more glum?

One likely reason is that they became chastened after getting burned in February and early June — turning bullish just as gold was topping out. Like Charlie Brown who stops trusting Lucy after she too many times pulls the football away just as he was about to kick it, many of these older and wiser timers are now in effect saying that they won’t trust gold.

It would be the height of irony, of course, if it is this time that gold does push convincingly through the thousand dollar barrier and move significantly higher.

– Mark Hulbert

Gold investment demand rises by 46%: WGC

2009-08-19

(Commodity Online): Investment demand for gold remained very strong in the second quarter of 2009, rising 46% on year earlier levels as investors continued a flight to quality. Overall demand for gold fell back from recent high levels as weak economic conditions and high gold prices combined to impact demand, according to the Q2’09 Gold Demand Trends report published today by World Gold Council (WGC).

Although gold demand remains very high on a historical basis, total demand in Q2’09 was down 9% on the levels of a year earlier, a 6% decline in $US value terms to $US21.3 billion.

In India, despite domestic economic pressures and sustained near record local gold prices, second quarter gold demand recovered from the exceptionally weak levels witnessed in the previous quarter, rising from 17.7 tonnes in Q1’09 to 109.0 tonnes in Q2’09. However, total demand remained well below year-earlier levels. Total gold off-take was down 38% on Q2’08, with jewellery, the largest component of demand, falling 31%.

Retail investment demand returned to positive levels from the dishoarding seen during the first quarter, but was nevertheless weak in comparison to year-earlier totals. Demand for bars and coins, at 21.0 tonnes, was less than half the 48.1 tonnes recorded in Q2’08.

Aram Shishmanian, CEO, World Gold Council, commented: “Despite the recent near record rupee prices, investor appetite and consumer affinity for gold remains healthy. While the most recent quarter-on quarter improvement was in large part a seasonal improvement, we expect a healthy rebound in activity. A stronger economic outlook than many regions, and the forthcoming festival season suggest that demand for gold will continue to build on recent trends. We expect consumers, investors and the trade to look for opportunities to buy following an exceptional period of profit-taking and de-stocking.

“More widely, this is another excellent quarter for global gold demand as gold’s unique properties and broad demand and supply base continue to sustain a vibrant market and support the price. Although demand failed to match the exceptional levels seen in previous quarters when the economic and financial crisis was at its peak, demand nevertheless remained very robust throughout the quarter. Investment demand, in particular, witnessed a strong quarter and we believe this indicates a growing recognition of gold as an important and independent asset class.

“The global economic downturn has certainly had a major impact on the purchasing power of gold consumers, as have the high local prices and dollar volatility. However, we continue to see pockets of solid demand in many non-western markets on dips in the gold price. We expect consumers, particularly in India, to look for opportunities to buy back the jewellery that has been recycled over recent quarters”.

The figures, compiled independently for WGC by GFMS Limited, show that total global identifiable investment demand for gold, which includes exchange traded funds (ETFs) and bars and coins, remained very strong. Investment demand rose to 222 tonnes, a 46% increase on year-earlier levels, but below the extreme highs experienced during the previous three quarters when the economic and financial crisis was at its peak.

Global retail investment, which includes demand for physical gold in the form of bars and coins, had another healthy quarter. Net retail investment was up 23% relative to the previous quarter and 12% on the levels of Q2’08 as investors, specifically those in western countries, continued to seek out gold for its unique wealth preservation qualities. Flows into gold ETFs returned to a more moderate, but historically robust level of 57 tonnes after an exceptional first quarter that saw net inflows total 465 tonnes.

Inferred investment, which covers the less visible part of gold demand, stood at 195 tonnes in Q2, up from 10 tonnes for the same period last year. This rise reflected a significant increase in gold held by investors, wary of counterparty risk, in allocated gold accounts.

The impact of high local gold prices (near record highs for consumers in some countries), at a time of severe global economic difficulty, led to a widespread decline in consumer demand for gold jewellery, down 22% compared to the same period in 2008