Don’t Be Fooled by Gold’s Decline: The Bull Marches On
Gold has been weakening over the past several weeks, and, on Tuesday, the bottom seemed to have fallen out of the market. The gold price fell about 2 percent to $1,265/ounce and the Market Vectors Gold Miner ETF (NYSEARCA:GDX) was down nearly 4 percent.
The move in gold was largely the result of data coming out of China showing a substantial decline in gold imports in April year over year from 76 tonnes to 65 tonnes. On a longer timeline this decline is hardly noticeable, as the 65-tonne statistic is several times greater than the numbers that were being reported just a few years ago, as the following chart illustrates.
As you can see April gold buying hardly makes a blip on this chart in the years prior to 2012. So in this context one can see that net gold imports are up. Think of it this way: If you buy a stock at $5/share and it rises to $80/share, and then it falls to $65/share do you whine about the $15/share you’ve lost or rejoice in the thirteen-fold gain in your investment? If you look at some of the media headlines you get a rather bearish picture:
- Bloomberg: China April Gold Imports Drop on Lower Investment Demand
- The Economic Times: China: Gold Imports From Hong Kong Lowest Since February 2013
- Seeking Alpha: Gold Slips Amid Slow Chinese Demand
But the above chart tells a different story — gold demand is rising quite rapidly, although it is not rising in a straight line.