Minyan Mailbag: Price Correction for Gold?
Investment demand, no seasonality, driving the yellow metal.
As a avid follower of your posts on MV, I wonder if you would comment on growing calls for a large gold correction from commentators and chartists. Their concern seems to hark back to predictable gold seasonality, as well as what they assume will be a growing torrent of scrap gold inventory coming from India, etc.
Do you feel we will have the usual season correction this summer? And that investor demand will be drowned out by scrap inventory coming back into the market?
Thanks as always for your insight,
Dear Minyan Brent,
I talked about this several weeks ago, in Countdown to the Gold Rally and Bear Hug for Gold.
Those bears focusing on the seasonality of gold are forgetting why seasonality typically occurs: The seasonality of jewelry demand coming out of India. But Indian demand went to virtually zero in February (a month during which gold rallied $100). It's investment demand that's taking up the slack and currently driving the gold market (check out GDX).
And investment demand obviously isn't seasonal. An enormous short position has been built up in the COMEX futures over the past month betting on seasonality and weak jewelry demand to take the gold price down.
Nevertheless, investment demand remains strong, and the gold price refuses to fall. Eventually, these shorts are going to be squeezed by that investment demand, and my guess is their covering will provide the fuel to make a move to new highs in the coming weeks.
Professor Lance Lewis
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