Who Is the Natural Buyer of Gold Right Now?

AP

What's next for gold? I never believed the gold bugs who argued that gold would inevitably hit $5,000 an ounce, but I also don't necessarily believe the bears, who seem to believe gold could go right through the floor to, say, $500.

Right now, I see gold 25 percent off its highs...that is not good, but gold went through one of the great bull markets of all time...from $400 in 2005 to over $1,900 toward the end of 2011...so you are still above water if you bought gold before roughly February of 2011.

But still...the strategy of buying gold to protect against central bank printing of money has failed, as least for the moment.

Gold has underperformed the S&P 500 since the March 2009 bottom in the S&P, but particularly since the start of this year, with the S&P 500 up 9.8%, and gold down 22 percent.

Regardless, the whole thing that matters now is this: 1) where will gold bottom, and 2) who is the natural buyer right now?

I have no idea where the bottom is. Gold bears like MKM note that if gold had simply moved with the CPI basket since 1913, it would stand at $490 an ounce. Wow. That is more than 60 percent below it's already low price. I doubt it will go anywhere near there.

Who is the natural buyer of gold now? Let's run through the suspects:

1. Small buyers of physical gold and coins. Nah. Not big enough.
   
2. ETF buyers. Possible, but not as big as everyone thinks. The largest gold ETF, the GLD, only has 1,300 tons of gold. Compare that to the 8,000 tons the U.S. has.
   
3. The Chinese. They are the big buyers in commodities, and there's no reason they would not be interested in buying on a dip. But they are investors, and they have been burned now, so it's also possible they may wait for things to settle out.
   
4. Indians. Now it gets interesting. Indian women are the largest buyers of gold in the world; if they smell gold is a bargain they can make a difference.
   
5. Central banks. Also interesting. They have stepped in before. A couple years ago, the IMF sold about 400 tons of gold...about half that amount ended up in Central Banks of several emerging market countries, including India.
   
6. Investment funds. How about a big purchase from a sovereign wealth fund? A Templeton fund? Anybody who thinks gold is at a bottom? This is the most logical buyer...after all, it's buy low, sell high.
   

So there you have several buyers. In order of preference: investment funds, Indian buyers, Chinese buyers, central banks.

One final thing puzzles me: all the way up for gold, many were bitterly complaining that the Fedwas creating this move up because they were laying the groundwork for massive inflation. NOW some are bitterly complaining that the Fed has destroyed inflation and the gold market. Huh? Which is it?

Put differently: QE2 and QE3 was supposed to be a failure because it created a rise in commodity prices. NOW QE2 and QE3 are supposed to be failures because it DIDN'T create a rise in commodity prices. Which is it?

Maybe the Fed wasn't so important for commodities after all?

—By CNBC's Bob Pisani

Font
font-family
font-size
font-style
font-variant
font-weight
letter-spacing
line-height
text-decoration
text-align
text-indent
text-transform
white-space
word-spacing
color
Background
bg-attachment
bg-color
bg-image
bg-position
bg-repeat
Box
width
height
border-top
border-right
border-bottom
border-left
margin
padding
max-height
min-height
max-width
min-width
outline-color
outline-style
outline-width
Positioning
position
top
bottom
right
left
float
display
clear
z-index
List
list-style-image
list-style-type
list-style-position
Table
vertical-align
border-collapse
border-spacing
caption-side
empty-cells
table-layout
Effects
text-shadow
-webkit-box-shadow
border-radius
Other
overflow
cursor
visibility

Font
font-family
font-size
font-style
font-variant
font-weight
letter-spacing
line-height
text-decoration
text-align
text-indent
text-transform
white-space
word-spacing
color
Background
bg-attachment
bg-color
bg-image
bg-position
bg-repeat
Box
width
height
border-top
border-right
border-bottom
border-left
margin
padding
max-height
min-height
max-width
min-width
outline-color
outline-style
outline-width
Positioning
position
top
bottom
right
left
float
display
clear
z-index
List
list-style-image
list-style-type
list-style-position
Table
vertical-align
border-collapse
border-spacing
caption-side
empty-cells
table-layout
Effects
text-shadow
-webkit-box-shadow
border-radius
Other
overflow
cursor
visibility

Font
font-family
font-size
font-style
font-variant
font-weight
letter-spacing
line-height
text-decoration
text-align
text-indent
text-transform
white-space
word-spacing
color
Background
bg-attachment
bg-color
bg-image
bg-position
bg-repeat
Box
width
height
border-top
border-right
border-bottom
border-left
margin
padding
max-height
min-height
max-width
min-width
outline-color
outline-style
outline-width
Positioning
position
top
bottom
right
left
float
display
clear
z-index
List
list-style-image
list-style-type
list-style-position
Table
vertical-align
border-collapse
border-spacing
caption-side
empty-cells
table-layout
Effects
text-shadow
-webkit-box-shadow
border-radius
Other
overflow
cursor
visibility