When the gold prices dropped from an all-time high of USD 1920.84 per ounce in September 2011, many analysts thought a death knell sounded for the gold's then bull market run. Think Again! Driven by surging investment demand in China, as suggested by the record-high imports from Hong Kong and the strong long signals from the first week of the year, gold prices is slowly but surely rising from the debacle of former times. It's indeed strange times since all this occurred despite a stronger trade-weighted dollar. However, credit downgrades in the latter half of last week and an expected further decline for the euro area are sure to test the recent upsurge in the gold prices.

The increment in the Chinese gold demand in advance of the Lunar New Year was by far the dominant stories for precious metals last week. The Hong Kong Census and Statistics Department reported a record 103 tonnes of gold entered mainland China from Hong Kong, up from 86 tonnes in October. Yes, I know what you all may be thinking. Hong Kong is not the only route for gold to enter China, but the trend for Hong Kong imports is considered a good proxy for overall imports.

China is now hailed as the biggest gold producers in the world. When combined with an annual mine production of over 350 tonnes, the recent import data sets the stage for what could be a blockbuster report on gold demand in China for 2011. China has long awaited to enhance its gold reserves, but have been reluctant to buy in large quantities for fear of driving the prices higher. The late 2011 fall in the gold prices may have prompted the authorities to buy gold.

Apart from the Chinese factor, it is quite possible that last week's European downgrade will also cause the gold prices to increase. This is just a personal opinion and cannot be responsible for losses incurred. So, all that glitters in this dark environment, may indeed be gold!