Gold touched a record $2483 but has since reversed lower and is trading down $12 on the day to $2456.
Technically, I don't see this reversal as overly damaging as it doesn't come close to erasing yesterday's spike higher. However we could see a retest of the old record high of $2450 set in May and that could be a pivot point.
My eyes are focused on China and its appetite for gold. The bull run started 20 months ago when the PBOC began adding to gold reserves. It ran into problems last months on the first reports that they had stopped adding to reserves. That news hurt again last week on a report that the buying had dried up for a second month.
Despite that, gold rallied to a record high anyway on rate cut hopes and political turmoil. That's an impressive signal but the buying from China is fundamental for the bulls.
Today, Reuters reported that China isn't done, citing a policy insider. They would like to bring gold to 10% of reserves from 4.9% and that would require buying another $170 billion at current prices. That would be about 70% of all the gold mined globally in any given year and that 70 million ounces compares to the 7 million China bought last year.
Needless to say, it will take some time.
The report says that PBOC buying is no longer price-insensitive and that leaves the market in a tricky spot. It puts a floor under gold prices in the $2000 range, which should be good for miners but it also lowers the ceiling unless other buyers can carry it or China reconsiders.
