After a semi-crash of the precious metals prices last week, it seems the downside pressure is fading … at least for now. For sure there is a potential for more downside; today’s slide of the gold miners index could be foreshadowing a continuation of declining metals prices. We always recommend monitor developing chart patterns before coming to a conclusion and we suggest readers to do the same with the current price development before becoming to a conclusion.

Let’s not forget that the primary trend is still down. In all honesty, we expect a wash-out bottom to occur before a trend change takes place, as we explained in our previous post.

The tipping point of a trend change occurs mostly when everybody has lost faith in an asset, even the die-hard bulls. We are close to that point, but still not there yet.

Meantime, What is Happening in the Physical Market?

Gold demand is going up tremendously. Let us review three particular gold centers across the globe: China, the US Mint, Germany.

As evidenced by gold analyst Koos Jansen, who is specialized in China, the latest statistics clearly show that the lower the price of gold the more the Chinese buy. Readers should check the data on this page.

What about the gold coin sales of American Eagles by the US Mint? As Bloomberg reports, “sales of American Eagle gold coins in October rose 16 percent to 67,500 ounces from a month earlier. The amount was the highest since January.”

In Germany, precious metal dealers have literally been run down in the last week, as evidenced by GoldReporter.  The article contains estimonials of several dealers; these are some interesting quotes:

Christian Brenner, CEO of Philoro Edelmetalle GmbH in Leipzig and Berlin:

“The run is tremendous, even today on a Saturday. Despite the high counter trade level in September, demand has increased by 100 percent, online-trade even soared by 300 percent.”

René Lehmann of Münzland in Dresden:

“Run is not the right expression. We’ve seen up to 80% of our regular customers taking advantage of the slide to build up more positions. On those two days, on Thursday and Friday, we made approximately 50% of our monthly revenue. The ratio of buyers to sellers has generally been at 50 to 1.”

Robert Hartmann, CEO of Pro Aurum:

“On Thursday demand had improved considerably. On Friday we had 250 percent more business (tickets) than on average in the weeks before. But it were rather gold bullion and coins that people focused on.”

That’s Quite Impressive, Right?

On the other hand, when reviewing the demand for gold investing through the most popular gold ETF GLD, it seems the gold holdings of the GLD are going down.

Gold Price Down, Gold Demand Up. What Is Going On Chart 1

What to Make Out of This?

Clearly, the correlation between the gold holdings of the GLD and the price of gold is strong. On the other hand, the inverted correlation between physical gold demand and the gold price is clear as well.

The issue with these trends is that they do not stop the downtrend of the gold price. What can reverse the downtrend? We believe the most important answer is investment conditions and investment sentiment. Today’s marketplace is really forcing people to get into stocks and forget about a zero-yielding asset like a precious metal. There is also no real need for a safe haven asset, at least that is not top of mind today for large investors.

Unfortunately, the gold price setting is still dominated by the COMEX futures market. Whether one likes it or not, it is paper gold trading that is determining the price and its trend. Until investment demand for gold returns, the price will go down, despite a significant rise in demand by the retail public.

So, one would be happy to see even lower gold prices as it would scare all (large) investors out of the market. At the same time, the stock market bull is getting very old; it could continue to rage for a while but it should take a rest in the near future. Those two trends are close to reach a tipping point. The sooner we get to that point, the sooner the current trends could reverse. Meantime, a lot of retail investors are happy to benefit from lower gold prices. Maybe you should too.