For a better indication of how real, actual, physical, tangible gold is doing, we have to look at physical gold sales, and when it comes to physical gold sales there is no doubt that the East has been hungry for the yellow metal for years now.
Summertime blues have settled into the gold market as a four week bear trend has taken gold from its early June high of $1339 to under $1290 and falling. The bears have the technical advantage in the near term charts with technical resistance at $1300 and no signs that anything will change while much of the Northern hemisphere (and the entirety of Europe) takes the month off to head for fun in the sun.
But when the shirts and ties return to the daily grind in September, they may just come back to a very different market. Is there going to be some sort of technical breakout between now and then? A short-covering boost to rally the spot price? Flight to safety lift from a worrying geopolitical event? Perhaps, but that's not what I'm talking about. For the real story, traders will have to turn to Asia.
As those with their eyes on the gold markets in recent years know, the real value of gold is not to be found in the spot price, which is heavily manipulated by paper gold products and ETFs that artificially expand gold supply a hundredfold. For a better indication of how real, actual, physical, tangible gold is doing, we have to look at physical gold sales, and when it comes to physical gold sales there is no doubt that the East has been hungry for the yellow metal for years now. Not only has China's central bank been on a buying spree in recent years, vastly increasing their reserve supply, but Chinese citizens have gotten in on the action, too, buying gold in record numbers and helping to make China the largest gold importer in the world, even surpassing traditionally gold-crazy India. China isn't the only one; there are gold ATMs in Dubai, gold rushes in Turkey, and gold-yuan trading on the increasingly important Shanghai Gold Exchange. So it only makes sense that the next innovation in the gold market would come from the East as well.
The announcement came, appropriately enough, at the first London Bullion Market Association (LBMA) Bullion Market Forum to be held in Singapore. At the event late last month, Singapore's Minister for Trade and Industry explained the newest offering on the Singapore Exchange (SGX):
“With the SGX as the independent matching and clearing entity, this physically-settled contract will create a more transparent and efficient marketplace for kilo bar trades. The exchange will also act as a centralized clearing house to reduce settlement risk among multiple counter-parties."
The offering is significant because it promises to create a price discovery mechanism for physical gold, not the paper gol
d price in other markets. Both SGX President Muthukrishnan Ramaswami and Singapore Bullion Market Association Chairman Ng Cheng Thye stressed the value of this transparent price discovery mechanism for physical gold retailers, with Albert Cheng, Managing Director of the Far East/World Gold Council, adding: "This is a wholesale, physical-settled exchange-traded contract for kilobar. It will satisfy the mid-tier, second-tier band, mid-tier bullion trader who want to have a source of kilobar at a price that they can see from the exchange. And then they can redistribute to their customer, or send it to jewellery manufacturer for them to make into jewellery."
So far the news has received only passing mention in much of the MSM in the US, but look for the Shanghai Exchange to increase in importance with the introduction of the kilo bar contracts and look for those in the know around the world to keep their eye on contract prices.