Most people think that its Investor Demand which keeps GOLD in a bull phase. They feel that this investment demand is present only due to COLLAPSE FEARS, eg. post Lehman Debacle. And since such fears are NOW ABSENT, they feel Gold can crash to 800$/Oz or even Lower.
Now the chart below tells us that this is NOT true. Gold was in the VERY SAME BULL market long before Lehman occurred. This demand was NOT due to Capitulation Fears alone, but instead mainly due to INFLATION. And GOLD CANNOT convincingly break this lower support trend line BECAUSE INFLATION on the GROUND LEVEL is excruciatingly painful for most, in this ‘’QE-ANESTHESIA’’ Era. And we know that QE is like drug addiction, meaning, QE from USA, or QE from Japan, or from INDIA, or MARS will NEVER STOP!
No wonder Bernanke did not TAPER his QE, as he is worried about a Deflationary Collapse. THAT IS WHY GOLD CANNOT CONVINCINGLY BREAK BELOW 1100$. AND RIGHT NOW IT’S A SCREAMING BUY!
An Intelligent question which also emerges is, In the Absence of Capitulation Fears, Won’t Gold Behave like a Commodity, which has been recently falling due to Asset Deflation? As we can see in the below CRB chart, Commodities have been steadily rising past 13 years. But with 2 exceptions. When it fell in October 2008 due to Lehman Deflationary Collapse and Recently in Mid 2011 due to failure of Reflation (QE Efficacy). Whenever a serious correction occurs in this chart it will mean a major deflationary episode has occurred, and this will lead to 'bankruptcy domino' and defaults and banking stress, requiring astronomical BAILOUT+QE measures. So coming to Gold, YES it HAS behaved like a commodity since Mid 2011, but once this ongoing episode of deflationary collapse shows signs of bankruptcies, defaults, bank-shutdowns, Gold will Shape-Shift from a ‘Commodity’ into GOLD Safe Haven!
Another fact is Physical Demand can Shake Comex Inventories and ensuing backwardation would demand a price rally. Yearly Jewelry Demand (and other smaller uses) for Physical Gold can easily be supplied without much stress to Comex & the Gold CARTEL.
But Physical investment demand has been constantly kept subdued for past many decades via monumental efforts such as diverting physical demand into ETFs which are completely bogus and have no Physical Gold Backing, also via Hollywood which forces fashion from Gold into Bogus ‘Oversupplied Stones’ promoted via movies like JamesBond’s ‘Diamonds’ Are Forever. BUT YET, Stealth Physical Demand is what is keeping GOLD steadily rising, despite all these efforts.
Also my Earlier (article) Concern for GOLD due to Eurozone Crisis Part II, is Not valid, because the next stage of Euro zone collapse includes gigantic countries like Italy, France & Germany, where ECB cannot do much, and will TRIGGER QE 5,6,7 response by Bernanke! Hugely Positive for GOLD.