Premia for gold bars (physical over paper) rallied to their highest since late-2008 according to SocGen, even as ‘professional’ investors look to position the exact other way. The combined short positions of futures and options speculators in COMEX gold is now at a record high for the third week (having surged from 4.3 million ounces in late September to a stunning 13.9 million ounces short now. At the same time, Gold ETFs have only seen one in-flow day in the last 34 days. It seems investors are well-and-truly on one side of this boat – even as price continues to buck the supposed structural weakness.
but price is now ignoring the flows (despite the protestations of some in the media)…
Shortage of metal drives premium higher as customers told to wait for delivery
While many professional investors looked to exit the market, the opposite response in the physical market to this recent price fall has also been dramatic. The price drop ignited a buying frenzy in Asia and other parts of the world, leading to a shortage of gold bars and coins in Hong Kong, Singapore and Tokyo, and helped the metal stage a rebound. The sudden demand surge caught many traders off guard and sent premia for the yellow metal soaring.
The US Mint had to suspend sales of certain coins as buying ramped up. The Mint sold an estimated 210,000 ounces of American Eagle gold coins in April; almost three and a half times more than the 62,000 ounces it sold in March. Similarly, the Perth Mint in Australia went into overdrive, working around the clock to keep up with an intensity of orders not seen since the 2008 global financial crisis.
Premia for gold bars rallied to their highest since late-2008 in Singapore and touched an 18-month peak in Hong Kong after a spate of physical buying led to supply constraints. Premia in Hong Kong touched $4/oz while in the Middle East there have been reports that both Istanbul and Dubai ran short of investment bars, with wholesalers paying a premium of $6-$9/oz for kilobars.
Retail gold sales tripled across China on April 15-16 after the rout, according to the China Gold Association. On the Shanghai Gold Exchange (SGE), daily physical volumes averaged 12.9 tonnes from the start of 2013 through to the close of business on 10th April. During this time the average premium on the SGE over loco London metal was just over $13/oz, itself a substantial increase from the 2012 average premium of less than $7/oz. While in contrast, during the price drop between 11th and 26th April, physical volume on the SGE averaged 32.6 tonnes daily, with an average premium of $20.4 over the London fix.
Turning to India, investment demand (albeit boosted by the imminence of the Akshaya Tritiya festival) has been significant with premia surging to a peak of $30/oz briefly before settling back to $8/oz in recent days. Imports exceeded 100 tonnes in April and looks set to repeat the performance this month ahead of restrictions proposed by Reserve Bank of India that will likely ban or at least restrict bullion imports on a consignment basis.
While investment bar and coin premia has eased from the frantic highs, they remain at elevated levels in several markets, with robust demand surging at every retracement in price. Mints and refineries continue to struggle to deliver supply chain orders with up to a one-month wait for delivery. For now though, there appears to be a growing disconnect between paper and real gold.
Charts: BloombergCourtesy: Zerohedge