Gold Struggles Despite Big Purchases

Gold looks like it's going to go down and test $1,300 today.  If support breaks, I wouldn't be surprised to see $1,280.  However, there are a lot of bids waiting for gold at $1,300. That could be the next bottom.

In this next chart, you can see how gold is testing support.

Now, this is expiration day for April gold options, and so that may have something to do with it -- the market makers are simply screwing with option buyers. So maybe we'll see movement in price tomorrow.

Short-term price action aside, the news on gold SEEMS to be bullish. Let's start with the huge amount of gold that China bought in February.

China imports of gold through Hong Kong for February were 30% higher than in the previous month, AND 79% higher than in February 2013 according to calculations from Bloomberg based on the latest Hong Kong official data. You can read a more in-depth examination of Chinese gold demand from Koos Jansen HERE.

And it's not just China.

• Iraq bought 36 metric tonnes of gold this month valued at about $1.56 billion in the largest purchase by a nation in three years.
• Russia has increased its gold holdings by 7.247 tonnes to 1,042 metric tonnes in February.
• Turkey and Kazakhstan also raised their bullion reserves, according to IMF data. Turkey's gold holdings rose 9.292 tonnes to 497.869 tonnes, the data showed.

Remember, this is the year that central bank buying of gold was supposed to slow down. Apparently, that's not happening.

Also, gold held by exchange-traded products jumped 6.9% in February, the first increase in 14 months. That's also according to Bloomberg data. You'll remember it was massive selling of gold by the ETFs that hammered the yellow metal lower last year. More recently, ETFs bought gold on Monday and sold it on Tuesday. Maybe they're confused.

The Bearish View

Still, the bears will tell you that the fact that gold is NOT rallying on the back of all this bullish news is, in itself, bearish.

Are they right? We'll see. I would remind you that 90% of the contracts on the COMEX are never delivered; they're just paper.  Meanwhile, people in China take delivery on 95% of the contracts on the Shanghai exchange. 

Meanwhile, the prices of most gold mining equities are at the lowest levels they have been since the depths of the previous gold bear market in 1997-2002, according to research from CPM Group. So if you're looking to buy gold miners on the cheap, now is a good time. More on the recent carnage in miners here.

If your'e trading short-term, I hope you raised stops on positions you have gains in. If you're trading longer-term, this probably won't amount to much. The lows of last summer are probably the lows for gold. And that means pullbacks like this should be buying opportunities.