As the dust settles from the historic gold crash of mid-April, reports keep surfacing about the extreme demand witnessed in the physical markets. As we reported before, Dubai is trying to become a global gold hub, and already handles 20% of the physical gold trade per year. Charged with the duty of quenching the insatiable demand of India, Turkey and the rest of the Middle East – Dubai’s gold market is struggling to keep pace, so much so that premiums have risen 20x above the normal level.
Especially in short supply are the 1 kg bullion bars, which are now trading at $6 to $9 above spot price per ounce, up significantly from the usual 50 cents according to MKS Precious Metals CEO Frederic Panizzutti.
Eye witness accounts of the Dubai Gold Souk reveals this shortage in plain sight, as bars that use to be flaunted in displays at the bazaars have now been cleared replaced with coins. With lack of supply reported in various nearby territories like Turkey, it is no surprise that this wholesale supply is also running out. Despite the Chinese Labor holiday, the price of gold remains strong at $1470 an ounce, and is looking to break above the $1500 psychological resistance and up the $1520 previous trading range.
Still with all this anecdotal evidence of strong demand for gold and market dynamics for physical gold showing strong resistance at lower prices, many analysts predict prices could potentially go lower. While this might be true in the paper markets, the physical side has proven beyond doubt that when gold becomes cheap, don’t expect to get a hold of the physical without some hefty premiums.