Gold Demand Keeps Optimism Supplied

Gold may be poised for some major movement, but in which direction?

Many gold analysts, and especially the optimistic ones, believe that gold landed well above $1,900, overly corrected itself and is therefore now on a gradual uptrend - a technical opinion that may very well be supported by some powerful fundamental basics. In the field of economics we all know very well that the pricing of just about ANYTHING has to do with one universal law: Supply and Demand. And that, my friends, brings us to the assessment of the supply and demand for gold in the long run.

Put succinctly, we as a planet have to replace/produce 80,000 million ounces of gold each year in order to BREAK EVEN and according to the World Gold Council (WGC), demand for global gold has risen 6 percent from the previous year to just over 1,000 tons (~32 million ounces) in this year's 3rd quarter alone. Also per the WGC, gold prices averaged $1,700 an ounce during the 3rd quarter of 2011, which is 39% higher than the same time last year and 13% higher than the 2nd quarter this year. Finally, the WGC states that in sum, investment demand for the yellow metal has increased by 33% on a year-over-year basis to reach the third-highest quarter of investment demand on record!

Please keep in mind, however, that many of these statistics are based on the TOTAL demand. Just about every global market did indeed experience gains in investment demand, EXCEPT for India, Japan and the U.S. High-growth economies seem to be eating up the gain more evidently, as can be seen in China, which experienced a total demand of approximately 612 tons year-to-date - a figure that has already smoked its 2010 stat.

On a more technical charting note, and according to technical genius, Clive Maund, gold has been "trapped in a narrowing trading range since its early September pre-plunge peak - a Symmetrical Triangle. This type of Triangle, which indicates a state of collective indecision, can lead to a breakout in either direction, depending on what fundamental developments ensue." And in closing he states that, "Notwithstanding a possible minor short-term reaction, which is suggested by the action late last week, it looks like gold is limbering up to break out upside from a large consolidation Triangle, which could be preceded by a false break to the downside first, as sometimes appears when a breakout does not occur until the price is almost at the apex of the Triangle, as is the case here." Now, if you're not into chart patterns much, or just have no idea what this paragraph just said, I wouldn't worry too much because it sounds pretty bullish to me.

Now while the long term outlook for gold looks quite favorable given both fundamental and technical observations by some top analysts out there, we have to keep in mind that this whole heaping pile of god-knows-what in Europe can add quite a bit of volatility and uncertainty, but that shouldn't scare a LONG term investor too much...

Patience and more power to all you bugs out there,

- Farview