Monday, June 9, 2014

Positive Set-Up For Gold In The Making

Gold is a story about two markets:
  1. Far East (mainly China and India) - this is a physical market - people there do not care about the gold price - they just want to hold gold in coins, bars etc. Why? Because for them gold is money and everybody wants to have money...
  2. West - this is a paper market - nobody cares about holding physical gold; the price of futures contracts is the only thing which counts.

In other words: the Far East holds gold and the West speculates, trades etc. What is more - in a silent and slow process the Far East is taking gold from the West. In my opinion, the paper gold market is going to vanish. Simply, the Far East will take gold from the West so in some time the Western speculators in gold will have nothing to speculate on.

But for the time being the speculation is still on. Looking at one of the main flag ships of gold trading, SPDR Gold Shares (GLD), we can spot interesting thing these days. Generally, the price of gold mirrors the changes in the flows of gold in GLD. Let us look at the chart below:

When there are in-flows of gold into GLD, the price of gold (and GLD) is going up. And vice-versa.
Presently, we can notice that there are inflows of gold into GLD (the last red circle).

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