From:

Gold Market Reaching The Breaking Point

Thursday, October 29, 2009

by Eric deCarbonnel

http://www.marketskeptics.com/2009/10/go...

China is increasing its gold reserves, and India has just bought 200 tons of gold from the IMF. Russia had publicly stated its intention to increase its ratio of gold reserves from 2% to 10%, and Brazil is also considering IMF purchases. Gold inflows into central bank vaults are increasing.

The rush to buy gold is also filling Swiss bank vaults. Swiss gold ETFs (ZKB Gold ETF - SWX and Julius Baer Physical Gold - SWX) are moving large quantities of gold out of London and into Zurich (70 tons as of last may), and they are running out of secure vaulting space (Why doesn't GLD ever have any storage issues? Think about it). This shortage of secure storage extends across Swiss bank system with even gold clearing providers like SIS Clear (who only deals with banking counterparties) running out of space.

China is now the driving force in gold market

China is now the fastest growing market for gold, with Beijing's gold markets reporting record sales. As the Chinese economy rebounds from the global recession this year, China is overtaking India to become the world’s top gold consumer. The Chinese authorities are reinforcing this strong demand for precious metals by pushing their citizens to buy gold.

[China’s] main state-owned television company is promoting gold and silver as an investment. The government is telling its people to buy gold. What's more, every bank will sell gold and silver bullion bars in four different sizes to individuals, and China's largest bank, the ICBC, is setting up a precious metals department to handle growing investor demand.
…
And if the Chinese authorities are pushing gold as an investment to their citizens, it obliges them to 'protect' the gold price, as Lawrence Williams of Mineweb notes. It would be tantamount to a betrayal if it fell, never mind the loss of all-important face that would result. Just as the US and the UK stepped in to bail out its banks, so China will be duty bound to prop up gold.

But the surprising strength we have seen in gold over the summer – we never really got the summer low I was looking for – suggests that somebody is already 'buying the dips' anyway. Indeed, the gold price has this week repeatedly gone through $1,000 during overnight trading, only to fall back when the US markets open. That indicates that the buyers are out east somewhere. I have written about this before: Gold is shifting from West to East – along with the balance of power.

China is now the driving force in the gold market and can be counted on to buy whenever there is a price dip, putting a floor under any correction. So don't expect to ever see prices beneath $900 again. With growing Chinese demand, Gold is never going back down.

What is really scary about gold breaking the $1000 barrier is that it happened in the face of a flood short selling in US futures markets. So while gold was being driven up by Hong Kong buying, it has also been getting killed by unrelenting selling during COMEX hours. As can be seen in the chart below, the quantity of COMEX gold futures contracts has begun spiraling out of control since the end of August.

Open interest in gold futures is EXPLODING, yet gold prices have broken over $1000 and are STILL going up! Demand for gold is reaching a level that cannot be stop as faith in the dollar disintegrates.

Investors emptying COMEX warehouses

======================================

Much more in full article:

http://www.marketskeptics.com/2009/10/go...