Bernard Hickey talks above in a Double Shot interview with NZ Mint's Head of Bullion Mike O'Kane about gold's drop from record highs as two gold trading exchanges tightened their margin requirements to make it more difficult for speculative traders to get in and out of the market.
"They're trying to delverage some of the risk out of the market by increasing their margin requirements, in this case (CME) by 22% this month and 27% last month," O'Kane said.
"They're trying to weed out some of the fly-by-nighters," he said, adding the Shanghai Gold Futures exchange had also increased its margin requirement from 11% to 12% and increased its daily trades limt from 7% to 9%.
Gold mine supply was up 7% over the last year, while demand for bars and coins had risen 9% over the same period, O'Kane said.
However, volume in exchange traded funds (ETFs) in gold had fallen 30% in recent months.
Demand from ETFs for gold had risen from 4% of demand in 2000 to 39% this year, he said.
"It's gone from zero to hero in 10 years, but it's just starting to pull back now as people are trying to get out of that speculative mindset into a safety mindset," he said.
O'Kane said many in the gold market expected central banks to keep printing money for a further 5-10 years.
The gold market was 11 years into a bull run, which typically ran for 25 years, he said.
Silver and platinum
O'Kane said demand for silver in the industrial and jewellry market had increased in recent months as the relative prices between silver and gold had widened.
"We're seeing in China, Turkey and India, the three largest markets in the world for demand for gold, that in the jewellry market people are moving to silver because of the price increases (for gold). We might find as we move into October and the Diwali season where gold typically increases in price because of demand in India, we might see silver take more of the pressure," he said.
Platinum prices had typically between twice that of gold prices before the US car market slumped in 2008 and prices dropped back to be in line with gold. The revival of US carmarkers through 2009 and 2010 had seen demand for platinum recover slightly, given it is a key component for catalytic converters.
Platinum prices have been relatively weak though in recent weeks as gold firmed.
O'Kane said the market consensus was for a rise in the gold price to US$2,000 to US$2,500/oz later this year.
A euro breakup, a banking collapse or a sovereign default could be the catalyst for a rise in the gold price to these levels, he said.
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