Despite recent volatility within the range, the dominant trend remains decisively bullish. Bullish fundamentals and a generally favorable technical picture both offer support to the market.

While further near term consolidation within the range is likely, periods of consolidation in June and July have historically provided excellent seasonal buying opportunities.

The World Gold Council (WGC) noted in their Gold Demand Trends that total identifiable demand for Q1-08 had fallen by 16% in tonnage terms versus Q1-07, but had risen 20% in terms of value. The increase in dollar terms to $20.9 bln is more than twice the demand of just four years ago.

The ongoing global financial crisis played a significant role in the marked increase in investment demand for gold. While tonnage demand was categorized as "broadly neutral," in dollar terms the value surged by 41% to $4.3 bln y/y.

Investment in ETFs and similar products more than doubled to 72.9 tonnes y/y.

Consumer demand in India, the world's largest buyer of physical gold, dropped significantly as a result of higher prices and market volatility. Both jewelry and investment demand were half the levels of the same period last year.

However, decent buying interest out of India has been noted on recent dips. Such interest is seen as significantly supportive to the market.

Meanwhile, Chinese demand grew by 15% y/y to 101.7 tonnes. The bulk of that increase is attributable to a surge in investment demand, which was up 63% y/y. The robust economy allowed Chinese consumers to increase purchases, despite the higher price of gold.

In a MoneyWeb interview, Jill Leyland economic advisor to the WGC, noted that the main markets for gold are India, China, the Middle East, Turkey and the US. In response to a question about global gold consumers being "under pressure," Ms. Leyland said, "Now, in the US obviously the consumer is under pressure, but in all the other markets the consumer is still doing very well."

Net de-hedging increased by 36% y/y to 128 tonnes. The recently released Société Générale Gold Hedge Book Analysis shows that total de-hedging for 2008 could reach 300 tonnes.

Gold supply in Q1 was up marginally y/y, increasing 6% primarily as a result of an uptick in scrap sales tied to sharply higher prices. Scrap supply increased by 30% y/y, while mine output remained constrained.

The WGC also reported that when Q1 de-hedging is subtracted from mine output, the result is a 6% decrease in total mine supply y/y.

It is also worth noting that the WGC believes that the proposed IMF gold sales of 403 tonnes are unlikely to start before Sep-09. Such sales have yet to receive final approval. Such approval is contingent on a favorable vote from the US Congress, which has denied IMF gold sales in the past.

The overall picture painted is one of a healthy gold market supported by solid fundamentals. Activity early in Q2 has been highlighted by an increase in physical demand prompted by the corrective pullback that has resulted in part from ETF redemptions. As Mike Kosares, President of Centennial Precious Metals, likes to point out; paper sales provide buying opportunities in the physical market.

Many of the themes confirmed in the WGC report are consistent with the fundamentals highlighted by Mr. Kosares in his article Golden Gut Check that was originally posted 07-Apr.

Gold Market Movers:

US Q1 GDP (preliminary) revised up to +0.9% from +0.6%.

US jobless claims for the week ended 24-May increased 4k to 372k.

Eurozone M3 for Apr grew faster than expected at 10.6% y/y, versus a revised figure of 10.1% in Mar.

Eurozone economic sentiment index for May steady at 97.1.

UK Nationwide house prices for May fell 4.4% y/y.

US and European debt markets flash new warning signals

Gold de-hedging could reach 10m oz in 2008

The coming grand cycle commodity bull market

Worldwide food and crop prices to remain strong through 2017