Gold Demand Soars. Price Falls. What's Going On?

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According to a Reuters report quoting Abu Dhabi Gold and Jewellery Group Chairman Tushar Patni "It was the best month the market has seen in almost 30 years and it compensated for any drops we have seen earlier this year. We had never expected that if gold fell below $800 an ounce we would see a 300 percent increase in volume and 250 percent in value, especially as many buyers are abroad on holiday."

Gold market manipulation conspiracy theorists should be having a field day. The past few weeks have seen solid evidence that physical gold demand from individuals is soaring...Indian gold sales have picked up enormously in the past few weeks leading to purchasers having to wait several days for deliveries as the traditional sellers are short of gold, while yesterday we hear that Abu Dhabi, a major trading centre for precious metals, has seen gold sales rise by 300 percent in volume and 250 percent in value in August compared with a year ago.

According to a Reuters report quoting Abu Dhabi Gold and Jewellery Group Chairman Tushar Patni "It was the best month the market has seen in almost 30 years and it compensated for any drops we have seen earlier this year. We had never expected that if gold fell below $800 an ounce we would see a 300 percent increase in volume and 250 percent in value, especially as many buyers are abroad on holiday."

Switzerland's UBS - the world's largest trader of gold bullion, noted yesterday that "Physical demand continues as of Monday with a near-record day of Indian demand prompted by the dollar and crude induced sell-off of the gold price". The Swiss bank also noted the huge liquidation of long positions on the Comex and OTC markets in the U.S., which has been a major contributor to the gold price fall and went on to comment "This combination of heavy long liquidation and stellar physical demand remains the main reasoning behind our strong call in gold (although supported also by a technical view on the dollar from our Technical Strategy colleagues)." ...

But, yesterday and today, despite the apparently good news on demand, the gold price plunged by over $40 an ounce and, at the time of writing was trading just above $790 an ounce. Something doesn't seem to add up!

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