During gold’s bear market from 2011, the flow of gold out of ETFs drove the popularity of the West to East narrative not just among goldbugs but also bullion market professionals. It was a life raft I suppose that many clung to, to find hope as the price relentlessly fell, notwithstanding how much gold was flowing into “the East”. Today, investors have abandoned the raft as they step out on to the terra firma of $1050 and stagger about basking in the lush tropical greenery of a rising gold price.

It did strike me as odd that my fellow raft-mates talked of gold flowing out of the ETFs, I seem to remember that the talk on the deck of the good ship gold, before the terrible price storm, was that ETFs were suppressing the price as they didn’t buy or hold any physical gold. In that case how could real gold be flowing out of them? Possibly I was affected by sunstroke while drifting on those bearish seas, those pre-2011 days do now seem like a dream and much has been lost to the Internet winds (and convenient content destruction as website were redesigned).

So how to navigate this new terrain? While one can never avoid subjective interpretation, we feel it helps to take one’s bearings from the reality of market prices and in particular, spreads. Therefore it is with interest that I read the following from Reuters:

• Dealers in India were offering a discount of up to $100 per ounce to the global spot benchmark
• Prices in China were seen at a discount of $1-$2 per ounce
• A discount of 50 cents to $1 was being offered in Japan
• Hong Kong prices were at a discount of $1 this week

On the flow front, Platts reported Indian “gold bar imports at only around 215 mt so far this year, just under half the 2015 level, many are expecting a much lower total for full-year 2016” and SCMP noted that Chinese “sales of gold jewellery across the sector have slumped 20-40 per cent”.

While just a reduction and not a reversal of flow to the East, the West is certainly Yang-ing to the East’s Yin-ing. Koos Jasen notes that the “UK is now one of the largest net importers. In April 2016 the UK net imported 195 tonnes of gold – while export to China was nil”, reflecting gold ETF accumulation.

I take comfort from the fact that the gold price has held up while Indian and Chinese demand, as revealed by discount spreads to London gold, has fallen. One thing I learnt early on at the Perth Mint was that Indian demand (and later Chinese as they opened up their market) would moderate and sometimes completely stop in the face of a significant move up in prices. As Jayant Bhandari explains in this Al Korelin interview, Indians will watch to see if the gold price holds at the higher levels before coming back into the market. It is as if they pull their bids to see if the Western demand has legs or is speculative froth.

While some survivors are euphorically shouting “bull ahoy”, our proprietary indicators are saying it is too early to tell whether we have reached the New Gold World or washed up on the deserted (demand) Island of Speculators.