Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

If we all just join hands, close our eyes and think hard enough about gold hitting $1,300, then it'll get there.

Source: Bloomberg

Ever since a sharp rally in February, gold has been yo-yoing in the upper-$1,200 range without ever quite making it to the next round number. That may be because, while the spirit has been very willing, the flesh, so to speak, has not.

The World Gold Council just released its figures for demand in the first quarter. The biggest buyers of gold are traditionally people who want to wear it and people who want to lock it in a safe (or, if you're buying exchange-traded products, have someone else lock it up for you). That held true in the first quarter, but something interesting happened:

Coin Flip
Demand for gold in the form of coins, bars and other investment products outpaced jewelry for the first time since 2011
Source: World Gold Council

Gold's rebound in the first quarter had everything to do with investors freaking out about the global economy and suddenly deciding U.S. interest rates were staying put. This becomes crystal clear if you look beneath the investment-demand number a little further at how much was in the form of exchange-traded funds and other "paper" gold products.

Paper Chase
Demand for gold in the form of ETFs and similar products spiked to its highest level in at least 5 years
Source: World Gold Council

This is mirrored in the positions of speculators in Comex gold futures and options:

Gold Rush
Speculative length in gold futures and options has spiked
Source: Bloomberg

What flows in, though, can of course flow out, especially when what you have bought isn't a nice, heavy lump of metal that you can at least occasionally fondle, but instead a position floating out there in the financial ether.

For this rally to really push on, physical demand has to pull its weight. As seen in the chart above, consumption of gold jewelry has fallen to its lowest level since the third quarter of 2012.

One hopeful interpretation of this concerns India, the world's second-largest market for gold baubles after China. Demand there fell to its lowest level in seven years as the jewelry industry went on strike in response to a government proposal to raise a tax on jewelry sales. This suggests Indians should get back to buying bling as the year progresses.

That's a sound argument, but not one to take completely at face value. Jewelry demand is very sensitive to price. Look back at the chart comparing jewelry versus investment consumption, and you'll notice the last time the former dipped below the latter was in the third quarter of 2011. That also happens to be when the gold price hit its all-time peak.

For Indians, it probably wasn't just the strikes that kept them from buying. Take a look at this chart of gold prices in U.S. dollars and Indian rupees, indexed to the start of 2008:

Gold is still relatively expensive when priced in local currency
Source: Bloomberg

Priced in greenbacks, gold is a third below the peak it hit in 2011. In rupees, though, it is only 14 percent lower -- not exactly a bargain. The more investors keep willing gold to break higher, the less inclined people who actually use it will be to go shopping. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Liam Denning in San Francisco at

To contact the editor responsible for this story:
Mark Gongloff at