The latest out of Switzerland below indicates that physical gold demand is "extremely strong" and gold bars are in short supply. On a surprise note, it is not often UBS paints such a bullish picture of gold.

Rough start in London - VHF

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August 26, 2008 5:30:36 AM

UBS Metals Daily

Author: John Reade

Gold Lower As Dollar Firms

Over the past three trading days the dollar has regained pretty much all the ground that it lost over the preceding week and this has taken the wind from the sales of the dollar-denominated gold price. But gold has held above $800/oz despite this strength, supported by extremely strong demand for physical gold, which has continued despite the London holiday on Monday. Stocks of small bars remain in short supply according to our Swiss sales desk, indicating that the market rather than just UBS continues to see strong demand for physical gold. The other precious metals have also held most of their recent gains, a confirmation that the losses were overdone on the downside. We continue to expect further recovery in precious metals prices, supported by the view from Jason Perl, Head of Technical Strategy for FX, Commodities and Fixed Income at UBS, who says we are very close to an import sell signal on the dollar. If this signal is triggered we will consider a strong tactical buy recommendation on one or more of the precious metals, so watch this space.