Fear mismatch? 10 month low for Sterling gold ETF not 4 month

I suppose this should be seen as a good thing -another proper buying opportunity for gold. But the reason it's a buying opportunity is because it's scary and I'm not immune to that fear.

However there is a mismatch, the media chat about impending huge falls in the gold price is nothing like it was back in December 2011 - at least not yet - but I think it's because in dollar terms the lows still aren't below the December 28 $1,523 low.

Gold up $200 in 1 month, will China support it?

On 29 December 29 gold was selling for $1,523 today its around $1,723.

On December the 28th I nearly bought back all my gold shares but thought the price would fall further. I was right (and therefore thought I'd always be right), it did fall, but only for one day and I didn't buy it on that day either - then it started it's most recent rally.

I'm deciding what to do next. Should I bite the bullet and get back on again? This guy (Nigam Arora) thinks that investors were making a mistake in seeing the Federal Reserve statement as a buy signal. But that's a lot of wrong people! Bloomberg reports 9 out of 15 gold traders expect gold prices to rise next week - which starts with a summit of 27 countries of the EU about growth and jobs buy 17 eurozone countries could break off to discuss Greece.

Another indicator of how this rally will go will come from China after its New Year holiday according to a report from UBS analysts reported by Mineweb. UBS said: "It will be interesting to observe China's appetite when markets there reopen after the one-week Lunar New Year break. For although physical markets naturally prefer cheaper prices, Chinese buyers by and large prefer to buy into rising momentum, while taking advantage of hefty pullbacks. That has been the pattern in recent years, but it was always grounded in expectations of higher prices ahead. So the returning Chinese participants need to believe that this is the start of something larger, otherwise they'll sell the rally."

At 2pm 10 PHAU shares would cost have me £1,088.60. My BlackRock Gold and General units are about level. 

My issue is whether gold will behave as an insurance for my cash. Is that likely if the price of all assets is rising? Although I'm sure it's not a valid argument the chart below shows everything moving in the same direction at the moment and the Bloomberg article linked above lists all asset classes rising except sovereign debt.

Some reading on gold, Iran and the petrodollar - stuff I didn't know but may be should have via Plan B economics.

Gold prices "unreasonable" should be $1,200 says China's biggest producer

On Sunday it was reported that Lan Fusheng, vice chairman of Zijin Mining, said “The gold prices currently are unreasonable.”

Zijin is China’s largest gold producer by output and China is the world's biggest gold producer with a fast growing output (Mineweb).

He said: “Prices have been boosted not only by people’s needs to hedge risks, but also by speculations” adding that a price between $1,200 - $1,300 was more sustainable over the next few years.

Lan Fusheng said that if the economic situation deteriorated he expected investors to seek refuge in the US dollar which would push down the price of gold.

He pointed out that high gold prices weren’t always good news for Chinese gold firms: “Rising gold price is good to company’s profit, but it makes overseas investment more risky and much more expensive.” If gold prices are high then so are the prices of gold miners.

Since 2009 Chinese retail investors have been encouraged to invest in gold. Only two days ago a piece in China Daily (US based) reported on the gold buying frenzy in China which is catching India as the largest gold market.

The piece quoted the World Gold Council's Marcus Grubb saying: “Gold demand is expected to remain firm through this year and next. Chinese consumers will continue to drive up gold demand as economic growth in the nation is still strong."

The piece said: “Earlier WGC predictions saw gold demand in China doubling by 2020, but there are now expectations of that happening sooner.” It added that the WGC “dentifies four key factors driving Chinese gold demand in a period of "ongoing global economic and financial uncertainty". These include gold investment being rooted in Chinese culture, impending inflationary fears in emerging markets, the country's central bank being positive on gold and limited domestic investment channels.

In August it was reported that despite increasing the amount of gold mined, this was outstripped by the level of domestic demand for gold.

Last month Adrian Ash, head of research at BullionVault pointed out to Gold ETF Investor that China had a high number of London Bullion Market Association registered gold refiners with applications for more in the pipeline.

ETF relevance? I don't know but if it's a genuinely held view or a state-sponsored aim its an alarming prospect for gold owners like me who bought far above the allegedly sustainable price!