"Physical demand for gold is still improving," Walter de Wet, head of commodities research at Standard Bank Group Ltd., wrote in a report today. "Volumes don't seem big enough to stem the slide in the gold price. Should demand reach levels seen in
June and July, it may start forcing short-covering in the futures market."

Eoin Treacy's view

Powerful cross currents continue to affect the gold market in what has been a troubling year for investors. This marks a significant change from the environment that prevailed for much of the previous decade, when bullish factors coalesced to churn out consecutive positive annual returns. While Chinese imports of gold from Hong Kong continue to trend higher, the trend of ETF holdings of gold remains on a downward trajectory. 

Looking at the price action we can conclude that since physical demand remains robust, it is not enough on its own to sustain historically high levels. A bullish catalyst in the form of increased ETF, institutional or concerted central bank demand is probably required to change from a headwind into a tailwind before significantly higher prices can be sustained. 

Gold has returned to test the June lows near $1200 and while it has steadied this week, a clear upward dynamic, evident on a weekly chart, will be required to signal short covering and a return to demand dominance. Against this background the NYSE Arca Gold Bugs Index posted a new 5-year low this week. 

Among some of the better performers, Randgold Resources has paused above its June lows but will need to continue to hold in the current area if the benefit of the doubt is to be given to potential for an additional rebound.Franco Nevada has also pulled back to test the lower side of a three month range. Sibanye Gold, which had doubled between August and early November, has pulled back to break its progression of higher reaction lows and a clear upward dynamic will be required to stem the slide