While last week’s gold plunge made history for being the biggest drop in gold price in nearly 3 decades, strong demand in the physical markets as we have reported all week has taken the paper price of gold back up to respectable levels. While still trading around 12% lower than it did at the beginning of the year, a strong recovery highlights that gold’s time in the sun might not be over just yet.
Yesterday gold rose more in a single day than it did since June 2012, and if current levels hold then we could be witnessing a near 5% jump for the week which would mark the largest one week increase in 1.5 years. The gold price currently stands at $1478 per ounce, or 12% off its lows of $1321 reached last week.
Following the take down in gold price last Monday, many analysts claimed that the bull market in gold was over and that a bearish slump had set in. Those sentiments were proved wrong by the sheer physical demand on the street level as investors everywhere from Asia to North America swarmed gold retailers and grabbed up what physical gold was available. Now there are reports all throughout the supply chain of shortages, and it is clear that gold at below $1400 is not sustainable from a supply perspective. Already the fundamentals show that average production cost of gold is around the $1200 level, so anything below that would mean gold mines would be unprofitable.
Despite the upbeat performance this week in the gold price, there could still be further drops as many of the large financial institutions like Goldman Sachs who shorted the commodity recently might still have interest in seeing prices go down. Furthermore, China is entering a 3 day weekend and the temporary removal of this support could be a perfect opportunity to make one last push lower before gold resumes it direction up.