If we look at the WGC (GFMS) headlines for the second quarter, it's pretty straightforward. Gold demand was down 7%, gold supply was down 6%. Looks pretty even, with perhaps a slightly bearish bias. Right? Wrong.
We don't even get to the end of the first paragraph before we begin to see the slipperiness of these numbers. We note that, expressed in dollar figures, gold demand was only down about 1%. So we immediately see the following dynamic: A 1% drop in (sales) demand -- virtually no decline at all -- is accompanied by a 6% drop in supply.
In other words, based upon GFMS' own numbers we see the decidedly bullish scenario of a market that can only be kept in balance if accompanied by steadily rising prices, a markedly different picture than what was presented in the headlines, and entirely different than what GFMS asserts in its analysis in talking about "The lack of a clear price trend..."
When a market can only be kept in balance with steadily rising prices, that certainly looks like "a clear trend" to me.
Dig deeper into the numbers and we find that:
...[investment] demand is also heavily-skewed by demand in India and China...excluding them from the total data gives a notably different result: a 16% year-on-year increase in demand to 195.2. Outside of these two markets, investment demand declined in only four countries [in the entire world].
When it comes to China, what we apparently witnessed was a mere pause in demand, brought about by the long sideways movement in prices. In fact, what we have seen with Chinese gold buyers is they are encouraged to buy with rising prices, and since prices must rise to offset declining supply it's inevitable Chinese buyers will soon leap back into the market.
With India, we had a large coordinated manipulation in the value of the Indian rupee lower, causing the price of gold in rupees to soar. Unlike the Chinese, Indian buyers are notoriously price-conscious. Thus, they, too, can be expected to move back into the market in much larger numbers since the devaluation of the rupee appears to be at an end.
Meanwhile, GFMS acknowledges the explosive growth in central bank purchases:
The second quarter was another period of significant purchasing by official sector institutions, with demand amounting to 157.5 tonnes. This was a record quarter for central bank buying...
So what we see is the bankers sitting on the market to restrain demand (along with a little currency manipulation in India), and then jumping into the market to swap their own paper for gold at the fastest rate on record. However, it's when we look to the all important supply side that the half-truths of GFMS and the WGC are most glaring.