The latest 13F regulatory filings revealed a rekindled love for gold by heavy hitters such as George Soros and John Paulson.  While the string of bad investment ideas suffered by Paulson after his “big short” of the housing market would make this news a contrarian indicator, the new positioning of Soros sends a more reliable signal.

The usually negative seasonal period for gold is about to end in a few weeks and investors such as Soros may be positioning for a technical rebound that may also find a powerful catalyst in concerted easing monetary policy from the ECB and the Fed.   Bernanke has been agnostic so far but the economic data could push him toward more aggressive “twisting” (a flattening of the yield curve) or outright quantitative easing after the election.  O the other hand, Mario Draghi has few options left and some kind of easing program should eventually start.

Given this background, one would expect inflation expectations to de-anchor but official statistics (an emphasis on “official” since those numbers notoriously underestimate real inflation) continue to paint a disinflationary picture not too favorable to gold.  China’s monetary policy should also be monitored as their recent slowdown may indicate the beginning of a rebalancing process toward a less investment and exports driven economy.

On a fundamental level, the World Gold Council (WGC) has recently published its quarterly “Gold Demand Trends” report which shows weakening demand in the jewelry and technology sectors offset by an increase in Developing Countries’ Central Banks buying.  The net result is a physical demand decreasing by 7% in Q2 2012 compared to Q2 2011 and 105 lower than the previous quarter.  WGC also indicates strong interest from Europe as the specter of a currency break-up favors gold a preserver of capital.

On the supply side, global production is practically unchanged with the exception of China and Ghana which showed increases of approximately 4-5%.  For future developments, some attention should be given to the recent turmoil in South African mines; so far disruptions have only been registered in the platinum sector but the situation could spread.

From a technical perspective, the 1500-1550 level has shown great support and unless more powerful deflationary forces were to materialize it should continue to hold.