While the mainstream media is focused on the physical gold outflows from the GLD ETF, the alternative media keep on focusing on the gold reserves in China, Russia, India, Turkey.
We definitely believe that, without participation by Western investors, there is no big chance to see higher gold prices any time soon. On the other hand, the evolution in the physical market as a consequence of the insatiable gold demand in the East will have most likely effects longer term. Although we have written about it extensively, this point was nicely summarized very recently in our piece “How Eastern Gold Demand Is Transforming The Gold Market“:
Will there be enough gold in the market when gold investment demand will start rising in the West? That is an interesting question, and the answer according to Bron Suchecki is “yes, but at the right price.” There is always enough gold in the market, mainly because gold has a huge stock, compared with “regular” commodities. Gold is flowing in huge amounts to the East and it disappears from the market as available supply. So increased Western gold demand could lead to a squeeze because existing holders will be the suppliers, and they will only offer the metal at higher prices.
Let us look at some figures related to the gold flows in the month of October:
- The GLD ETF has lost some 25 tonnes of physical gold
- Russia has added 18.7 tonnes of physical gold to its reserves, as evidenced on the chart below
- In India, gold imports in October jumped to 106 tonnes
- The Chinese gold market is a story on its own; is not very transparent, but the Chinese are for sure importing several dozens of gold in the last months (with gold’s price decline)
Taking all this together, it is clear that the Eastern gold demand is largely offsetting the Western disinterest. The real effects of this evolution will become clear once the interest from the West will heat up.
As far as Russia is concerned, the message of the following chart does not need any comment, apart from the fact that 2014 appears to be the best year when it comes to gold reserve increases (similar to 2010), as evidenced in the lower part of the chart.
Chart courtesy: Goldchartsrus