Nobody Expects A Gold Reversal

Boy, the mood in precious metals is like a funeral directors' picnic right now. And the bad mood comes in spite of the fact that gold is making a decent attempt at putting in a bottom.

Gold closed down a bit yesterday. But it's up this morning (though off its highs), and silver is up, too. The fuel for the move may be that China's gold imports in October were HUGE.  According to Reuters...

China's net gold imports from Hong Kong climbed to their second-highest on record in October, as the country bought more than 100 tonnes of gold for a sixth straight month to meet unprecedented demand.

Mineweb adds ...

Chinese gold imports through Hong Kong accelerated in October to 131.2 tonnes ...  the seventh month this year that China has imported over 100 tonnes of gold and the sixth in a row.

The sheer tonnage of China's gold imports are amazing. It was expected to break 1,000 metric tonnes this year. Obviously that estimate was too low ...

China net gold imports from Hong Kong 2013 to date

Month	(tonnes)
January	20
February	61
March	136
April	77
May	106
June	102
July	113
August	110
September	111
October	131
Total year to date	967

But I can't emphasize enough, this is only gold imported through Hong Kong. China also imports gold through other routes, including Shanghai. So, its total import figures now look likely to be nearer 2,000 tonnes. Some analysts put them even higher.

Bottom line: Gold continues to move from West to East, seemingly at an accelerating rate. The West only has so much gold to sell, and the Chinese have seemingly bottomless pockets with which to buy.

So the China imports are one angle.  Now let me give you another one. As I wrote in my Gold & Resource Trader issue yesterday ...

"Funds that are long gold have hit a four-year low, while short positions spiked recently.  In other words, sentiment on gold got too extreme."

As an indicator of that sentiment (but also a fundamental on gold), Exchange-Traded Products (ETPs) that hold physical gold continue to sell. Their bullion holdings fell by 17.1 metric tonnes in the most recent week to 1,852.4 tonnes, according to Bloomberg data. That’s the lowest level since April 2010.

Now, let's look at two charts from Citigroup on gold and silver ...

Source

Citi's FX Technicals group is now bullish on gold, targeting $1,335 for gold in the short term.

Nobody is expecting a gold reversal, even a short-term rally. And that may just be why we get one.

Just something to think about. Have a great Thanksgiving, and let's all count our blessings.

All the best,

Sean