Return to Gold by Eastern Jewellery Markets Means Price May Have Bottomed

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Reports from Asia in particular suggest that jewellery sector buyers and investors have been climbing back into the market for the yellow metal in a big way in the past few days after virtually boycotting it in the run up to the recent higher price levels. The jewellery market tends to be pretty shrewd in its assessment of price levels, and this activity suggests an underpinning of the gold price at or around current levels and further suggests, perhaps, that the upward momentum will come back into effect before too long.

One of the elements which observers have used to express caution over the rise in gold prices over the past month seems to have reversed in the past week as the metal price fell around 10 percent from its plus $1,000 highs in only a matter of days.

Reports from Asia in particular suggest that jewellery sector buyers and investors have been climbing back into the market for the yellow metal in a big way in the past few days after virtually boycotting it in the run up to the recent higher price levels. The jewellery market tends to be pretty shrewd in its assessment of price levels, and this activity suggests an underpinning of the gold price at or around current levels and further suggests, perhaps, that the upward momentum will come back into effect before too long.

The Eastern jewellery sector, making its living by day to day trade in precious metals far more so than its Western counterparts because mark-up margins are far lower, tends to be a strong bellwether as to where the price is going. The past week, once gold came off its highs, has seen reports of a huge upsurge in buying in countries like India, China, Vietnam and Thailand. Indeed some observers have described the rush back into gold as unprecedented.

Sell on strength, buy on weakness has always been the investor's adage, and is obviously a wise principle, but picking the tops and bottoms is far from easy. Guidance from those who make their basic living from the marginal costs of gold could thus be good advice. But this more basic demand will be being heavily affected by profit taking within the Western institutional sector, with many funds needing to enhance their own basic liquidity. Whether this will have yet run its course will be another factor affecting the market.

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