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If Gold Demand is Up, Why Are Prices Still Down?

If Gold Demand is Up, Why Are Prices Still Down?
May 17, 2012

Demand for gold grew 16% over the past 12 months to 1,098 tonnes, according to the World Gold Council’s Q1 2012 Gold Demands Trend Report. Globally speaking, that translates into a tidy sum of $59.7 billion in gold. 

 
While 16% growth is impressive, today’s gold prices are still around 18% lower than their 52-week high. Why the discrepancy?

The May 5 trading session was the first in a while that gold has bucked the trend by going up when the S&P 500 (NYSEArca: SPY) and Nasdaq-100 (NasdaqGM: QQQ) are down. Over the past several months, gold has traded in tandem with volatile assets like stocks (NYSEArca: SCHB), industrial metals (NYSEArca: JJM), and oil (NYSEArca: OIL).

On the demand side, the gold market (NYSEArca: IAU) has long relied on India (NYSEArca: INDY) for consumer buying, but the threat of bans on imported gold could stop that. 

China figures to become a bigger player in the gold market. China increased its gold holdings in Q1 to a record 98.6 tonnes, up 13% from Q1 2011. Can China be counted on to boost gold demand higher?

Chinese stocks (NYSEArca: FXI) have lost 17.56% over the past three months and China’s real estate bubble (NYSEArca: TAO) is quickly deflating. Will Chinese money flood into gold and push prices higher?   

Europe’s sovereign debt crisis (NYSEArca: FXE) adds another monkey wrench into the gold demand/price equation. Will Europeans start liquidating their gold to raise cash?

The ETF Profit Strategy Newsletter via its Weekly ETF Picks explains what’s behind gold’s demand/price discrepancies and how to be on the right side of the market. The right gold strategy begins with clearly identifying support/resistance indicators along with strict trading discipline. No major rally or selloff happens without taking out key support/resistance levels.

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