Thursday , 23 November 2017


The Gold Market: What Can We Expect In the Months Ahead?

We are at an interesting and perhaps critical juncture with respect to the directiongold of the gold price as it approaches a key support level. There are many mixed signals out there and the market seems to be vacillating, frustrating both bulls and the bears. Let us look at both cases in order to try to understand what the gold market may have in store for us during the coming weeks and months.

The above introductory comments are edited excerpts from an article* by Andrew Hecht (technomentals.com) entitled Precious Metals Prices Fall: Gold At A Critical Juncture.

Hecht goes on to say in further edited excerpts:

…There are many mixed signals out there and the market seems to be vacillating, frustrating both bulls and the bears. Let us look at both cases in order to try to understand what the gold market may have in store for us during the coming weeks and months.

The Bullish Case

1. Fiat currencies are not “real” money

Gold bulls have argued for a long time that fiat currencies have little intrinsic value:

  • These currencies, the U.S. dollar, yen, euro and others have only the full faith and credit of the countries that print them supporting their value.
  • Central Bank policy of printing more and more currency, which some argue, will lead to an eventual inflationary spiral discredit the paper money.
  • The current move higher in the U.S. dollar is occurring because dollars are the best choice in a foreign exchange environment loaded with only poor choices.
  • Moreover, throughout history, gold is the only means of exchange that has survived thousands of years and gold is real money.

What the History of “World” Currency Likely Means for the U.S. Dollar – and Why

2. China is a massive buyer that waits in the wings

There are two components to Chinese buying:

  1. The Chinese government holds a very small percentage of their foreign exchange reserves in gold relative to other countries in the world. Therefore, the Chinese government plans to increase these reserves. China has recently become the largest gold producer in the world, producing 420 tons in 2013, more than 15% of world production. It is likely that much of that production will serve to increase governmental reserves with occasional purchases adding to the mix.
  2. Chinese citizens will continue to purchase gold particularly while the Chinese currency, the yuan, remains non-convertible. Lower gold prices will spur physical buying in China.

3. Gold has corrected lower and is oversold

  • Gold has moved 36% lower from the highs to an oversold condition on daily, weekly, monthly and quarterly charts.
  • A technical rally is overdue in the gold market and recent selling has seen tepid volume.
  • Not only is gold in an oversold condition, but gold mining stocks are also putting in bottoming formations.

4. Festival season in India will reinvigorate physical demand

There is certain seasonality to the price of gold, and festival and wedding season in India tends to bring buying to the market.

  • Signs of Indian buying are clear, as premiums for physical bullion in India have moved higher over the past week.

Gold Demand In China & India – What Does the Future Hold?

5. Production costs are above current prices

Some argue gold is now falling below production cost and in the case of some producers and mining projects, this is true.

  • Higher gold prices have caused aggressive mining concerns to explore for, and mine, higher cost production.
  • Mines in South Africa have become deeper over recent years; the deeper the mine, the more expensive production becomes.

Gold Production to Drop By 50%; Few New Discoveries Will Exacerbate Problem

The Bearish Case

1. Strong U.S. Dollar

Since June 30, 2014, the dollar has rallied 7.3%.

  • Priced and traded in U.S. dollars, gold traditionally has an inverse relationship with the greenback.
  • The current trend in the dollar is negative for the price of gold.

2. Prospect for higher U.S. interest rates

The U.S. economy has been showing signs of strength, which has prompted some Federal Reserve members to favor raising interest rates in the future. The prospect for higher US interest rates increases the cost of carry for all commodities, including gold.

3. Weak precious metals prices

Clearly, recent action in precious metals markets has been bearish:

  • Silver has shed 18.5% of its value since early July.
  • Platinum is down 14.5% during the same period.
  • Gold has only depreciated by 9.5%.

The key question for the future is, given recent price moves and relative values, is gold expensive relative to silver and platinum, or are the industrial precious metals too cheap at current levels?

4. Technical weakness

  • Interest in gold ETF products has been tepid:
  • An oversold condition in gold has been in place for over a month, but the yellow metal continues to move lower. The relative strength index on daily charts has remained below the 30 level, with slow stochastics also below 30.
  • Momentum and sentiment in gold remains negative, according to technical indicators.
  • Open interest in COMEX gold futures has dropped from 417,000 contracts in July to 388,000 contracts, a decrease of almost 7%.

5. No rally in the face of military action

Last week’s failure of gold to react on news of military actions in Syria and Iraq is another example of gold’s inability to appreciate on geopolitical tensions at its current price level…

6. No evidence of a big short position

The low level of open interest in gold futures (the total number of open long and short positions) provides evidence that there are no large long or short positions in the gold market at present. A move lower will likely encourage trend, following systems to short the gold futures market, which would set the stage for lower prices, at least initially.

Conclusion

Lower prices will eventually set the stage for another leg in what will be a continuation of the long-term bull market in gold….Gold has always represented value and it always will, however, it is possible that the price of gold continues to trade in a sleepy range, frustrating bulls and bears alike. Whether bullish or bearish, we should never forget that the daily price of gold is the right price for the commodity….[reflecting] a consensus indication of the perception and faith in political and economic systems.

Noonan: “Gold & Silver Will Turn When They’re Ready & They’re Far From Ready!” Here’s Why”

I am not on the fence here. I believe gold will eventually test and break the $1185 support [but] there is too little interest in the market to support a rally now. Right now,

  • the overall pressure on commodity prices,
  • a stronger U.S. dollar,
  • the prospect for rising interest rates and
  • weakness in other precious metals

will most likely overwhelm the bulls in the near future.

Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.

*http://technomentals.com/category/blog/

If you liked this article then “Follow the munKNEE” & get each new post via

Related Articles:

1. U.S. Dollar Strength Suggests Continuing Decline in Canadian, Australian & U.K. Currencies – and Price of Gold – Here’s Why

This article suggests that the Australian and Canadian dollars, and the British pound Sterling, can expect to decline significantly relative to the U.S. dollar in the months ahead and gold to decline even further relative to industrial commodity prices. Here’s why. Read More »

2. Gold Rush Is On In China (to replace USD with a gold-backed Renminbi?)

China consumed, mined and imported the most gold ever in 2013. Does this mean that the PBOC in Beijing plans to eventually back its currency, the Renminbi, with gold with a view to replacing the U.S. dollar as the world’s reserve currency? Here are the details. Read More »

3. Don’t Worry About the Future Price of Gold – China’s Got Your Back! Here’s Why

This eye-opening article explains how China is influencing gold demand and prices and what it means for Western investors. Readers will discover how much gold China is really buying and steps they are taking to undermine the U.S. Dollar as the world reserve currency. It even includes a prediction for gold prices. It’s a must-read for any precious metals investor. Read More »

4. Gold Demand In China & India – What Does the Future Hold?

Lifted by a continued surge in Asian gold sales, consumer demand for gold reached an all-time high in 2013 at 3,893 tonnes. Amazingly, 54% of this demand came from two places: India and China. However, it is only recently that the East has dominated global demand for the yellow metal. In this infographic, we look at India and China specifically to see why demand keeps expanding in the East. Read More »

5. Noonan on Gold & Silver: “The Market Is ‘Speaking’ & THIS Is What the Charts Are Saying”

This is one of those times where it is best to focus on pictures of the market, over various time frames, to get a better handle on what to expect moving forward, and a look at the charts tells us in no uncertain terms that the end is not yet in sight. Here is our read of what the market is saying, and has been saying for some time. Read More »

6. Noonan: “Gold & Silver Will Turn When They’re Ready & They’re Far From Ready!” Here’s Why”

Time is running out for all the 2014 enthusiasts that are calling for higher prices in gold and silver by year-end. The lessons learned from 2013 have been forgotten as not only are prices not beginning to move higher, they are making new recent lows. Incredibly enough, many of these prognosticators are paid pretty well by their subscribers. Lesson to be learned? Absolutely no one can divine the future. Stop listening to what others are saying, and pay attention to what the charts are saying – and below is a summary of just that. Read More »

7. The Gold Price Could Go Even Lower – Here Are 5 Reasons Why

I see various signs that indicate that gold bulls may have to endure one more capitulation to the downside before the next leg of the bull market begins. In what follows I identify what could send the gold price lower and suggest some investment strategies to consider. Read More »

8. These 4 Indicators Say ” the immediate outlook doesn’t look good for gold”

Below are the four most important factors that influence the price of gold indicators….If you understand and correctly interpret these four indicators, I guarantee you’ll make more intelligent buy/sell decisions. More importantly, you’ll make more profitable ones as well. Read More »

9. What Are Factors That Motivate Gold Saying Today?

What happens when gold has transitions from a cyclical bull market to a cyclical bear market? what motivates gold to enter a bull market phase? This article has the answers. Read More »

10. Gold: Likely to Fall to $950 – $1100; Unlikely to Rise Above $2,000 – Here’s Why

An analysis of the ratio between the market capitalization of gold (MCG) and the gross world product (GWP) over the past 63 years suggests that the current price for gold has further to fall and that it would not be wise to begin buying gold until prices have fallen below at least $1100 or $950. Read More »

11. Gold Will Drop to $900 – Silver to $15 – Before Going Parabolic!

Back in early May, 2013, I correctly forecast the lows in gold & silver which occurred 2 months later. Today, my new analyses indicates they both will show further weakness before both jumping dramatically in price by the end of 2014. Below are the specific details of my forecasts (with charts) to help you reap substantial financial rewards should you wish to avail yourself of my insightful analyses. Read More »

12. Final “thud” In Gold to $1,190 Level Coming! Here’s Why

In spite of the June 2014 pop [I expect to see]…a dip to below the $1190/oz level at some point between now and the end of the month. Here’s why. Read More »

13. Long-term Picture Shows Bull Market In Gold & Silver Is STILL Intact

The day is coming when insincere promises made by bankers to deliver tons of silver and gold sometime in an uncertain future will not be good enough to satisfy market demand, and that’s when this farce ends. Expect it to end with a bang, not a whimper, and people will either be in or out when it ends, so the time to get in is now. Read More »

14. Gold Price Dependent on Extent of Money Supply NOT Direction of US Dollar Index – Here’s Why

…When the USD starts to rise many assume that this is negative for paper gold ETFs such as GLD as well as physical gold. I’m sure you have heard it before, if the USD goes up then gold goes down, and vice versa…but, in reality, this “rule of thumb” isn’t the case and, in actuality, it would be impossible for the USD and gold to trade inversely with each other. Let me explain. Read More »

15. What Do Current Low Interest Rates Mean For the Future Price of Gold?

Investors commonly assume that rising interest rates adversely impact the gold price, and vise versa. They believe that a rising interest rate environment is indicative of a strong economy, which is supposed to drive investors out of gold and into the stock market. They further assume that investors will want to exchange their gold, which has no yield, for stocks and bonds, both of which have yields and generate income but this intuition is unfounded. Let me explain why that is the case ans why, as such, gold investors shouldn’t fear rising interest rates. Read More »

16. Gold Is NOT An Effective Hedge Against A Financial Crisis! Here’s Proof

A short time ago I started looking at the question: “Is gold an effective hedge against a financial crisis?” Having studied the question in more detail, I find the answer is no, gold is not an effective hedge against a financial crisis. Here’s why. Read More »

17. Careful! Gold’s Performance in Times of Crisis Often Not As Expected

We can devise logical scenarios as to what the price of gold should or should not do, but gold doesn’t always follow the plan. To paraphrase an old Jewish saying: “Man plans. Gold laughs.” Read More »

18. Goldbugs Should Pray for Higher Interest Rates – Here’s Why

Interest rates cannot stay low forever so, while the Fed’s low interest rate policy is pushing stock and bond prices higher, it is also infusing potential energy into the gold market. Therefore, it is only a matter of “When?” and not “If?” this trend reverses and gold catapults higher. Read More »

19. Buckle Up: Gold’s About to Begin A Major Breakout! Here’s Why

Buckle up! Gold is coming out of hibernation within the next 6 to 12 months and will then begin a major breakout to the upside to at least $3,600 over the next 2 to 4 years. Read More »

20. Part 2: Gold Has Bottomed & Is Now On Way to $4,000

In an opposite mode to the very bearish outlook for stock markets, developing evidence suggests that precious metals and in particular gold and gold stocks have completed a bear market low…and have already begun a major bull market. Read More »

21. A 5-digit Price for Gold Is Not That Far-fetched – Here’s Why

When I suggest that the gold price can rise to a level in the 5-digit range, I expect to be ridiculed or to have my forecast overlooked by most market participants. Nevertheless, as we will see in a moment the prospect of 5-digit gold is not so far-fetched. Read More »

22. Mark My Words: Gold & Silver Are About to Explode Higher – Here’s Why

War cycles – cycles that govern human social interaction on a grand scale, cycles that can be quantified and used to forecast periods of peace and war, periods of civil unrest and international conflict – are now ramping up and converging in the worst possible combination of forces not seen since the late 1800s. In the process they are setting the stage for gold and silver to explode higher with gold going up to well over $5,000 an ounce a few years from now … silver to more than $125 an ounce … and mining shares, to the moon. Read More »

23. Gold Production to Drop By 50%; Few New Discoveries Will Exacerbate Problem

The amount of gold becoming available for production in the near term will be well under 50% of that currently being produced and the longer-term downward trend in discoveries will likely continue for at least the next few years. Read More »

24. What the History of “World” Currency Likely Means for the U.S. Dollar – and Why

It’s common for the world’s most powerful country to issue a currency that becomes adopted around the world as the standard for international trade but whenever that country reaches a point of epic, terminal decline, and especially when it rapidly debases its currency, the rest of the world seeks an alternative. This article outlines the history of the rise & fall of “world” currencies over the centuries and then comments on what the future likely holds for today’s “world” currency – the U.S. dollar. Read More »

 

One comment

  1. “Whether bullish or bearish, we should never forget that the daily price of gold is the right price for the commodity….

    Sorry what?! I 100% disagree with this statement. The current daily price of gold is NOT the right nor correct price of gold. Where did you get this? The federal reserve colludes with other central banks to depress the price of gold using naked short selling in the paper market, leveraged at roughly 100 to 1. Gold competes with paper currencies. When gold goes up in value, it’s a signal to the market that something is wrong with the economy. It’s in the best interest of banks & govts. to keep the gold price low otherwise the market loses confidence. It’s very simple really.

    Today’s gold price is a manipulated lie. It’s a scam. The true price should be above $2000 USD.