So says Balaji Viswanathan in edited excerpts from his original article* as posted on Seeking Alpha.
Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.
Viswanathan goes on to say, in part:
Gold has gone up over the past 13 years from around $250 in 1999 to $1,920 last year before correcting down to $1,620 or so. There are four factors that helped the rise of gold:
- A period of sizable inflation (particularly in the commodity prices) from about 2002 to 2008.
- A period of uncertainty in the global markets (2008 to the present), including the financial crisis of 2008 and the eurozone troubles in Greece and elsewhere.
- The introduction of gold ETFs that allowed investors in the developed markets to bet on the yellow metal.
- The growth in India and China, where consumers got more prosperous over the past decade and bought a lot of jewelry. In fact, China is now the world’s biggest consumer of gold.
Source: World Gold Council
I detail below the reasons why gold could go down:
- The Asian jewelry market is slowing down. The World Gold Council reported that the markets all over Asia are seeing a drop in jewelry demand (India -19%, Saudi Arabia -17%, Thailand -8%, Turkey -16%, Vietnam -10%).
- The use of gold by industries fell 10% Q1 2012 (y-o-y), amounting to 10 tonnes of reduced gold consumption. The electronics industry is a major consumer of gold and the overall weak sales there will further reduce gold demand.
- The rise in gold prices has prompted explorers around the world to prospect even more keenly for gold reserves. Mining production has grown 5% this year, due to the renewed efforts in gold exploration.
- In India, the fast rise in gold prices, coupled with a drop in the rupee and the slowdown in the Indian economy, has priced out most of the middle class from buying gold. Bloomberg reports that “demand for gold and silver fell by about 20 percent to 25 percent this year because of higher taxes and prices… Investment demand dropped 46% and jewelry demand fell 19%.
- While Mexican and Russian central banks are busily adding gold to their portfolios, the demand from other central banks is dropping. In Q1 2011, the demand was 137 tons, while in Q1 2012, it was a little more than 80 tons.
- Inflationary pressures across the world have receded. Gold is typically seen as a hedge against inflation and normally tracks inflation in the long run. With the slowdown in the Indian and Chinese economies, along with the ever-increasing bad news flowing in from the eurozone, inflation fears have quickly evaporated from investors’ minds. Demand is expected to lag behind supply in most of the world, including in the emerging markets.
- The Indian wedding season, which makes for one of the largest consumption periods for gold, is over and June-September is typically a dull season for the gold industry in the country. The seasonal factor is expected to put pressure on gold in the short term.
- Chinese gold consumption growth is also falling as the major cities in the country reel from the economic slowdown. Though the growth is still positive, it is probable that Chinese consumers might follow the path of their counterparts in the rest of Asia.
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[The above are my reasons for being]… bearish on gold right now. [As I said at the beginning of the article]… in the long run, I believe the gold fundamentals are [too] weak to support the current price.
*http://seekingalpha.com/article/658701-8-reasons-why-gold-could-face-downward-pressure?source=email_macro_view&ifp=0 (To access the above article please copy the URL and paste it into your browser.)
Editor’s Note: The above article may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
“Even with the prospect of no QE, if you believe the Fed, gold has not made a new low [since December] so, in my opinion, the absence of QE is priced into gold. On the other hand, if market conditions hit emergency levels, the central banks will be forced to their knees and they will be doing QE by whatever name it’s called. I think at that stage you are going to see gold go ballistic because it will be an admission of failure on the part of policymakers….If investors don’t do something now and take advantage of this funky period we are in, this daily grind of back and forth, they are going to be paralyzed. They will just be bystanders when gold finally takes off.”
Lately analyst after analyst (161 at last count) has been climbing on board the golden wagon with prognostications as to what the parabolic peak price for gold will eventually be. That being said, however, only 51 have been bold enough to include the year in which they think their peak price estimate will occur and they are listed below. Take a look at who is projecting what, by when and why. Words: 644
Our Fractal Model suggests the wave for Gold in US Dollars will sweep up into the $3500 to $3600 area into the mid-year time-frame. The leading edge of that time-frame begins in May and extends out for a few months. A potential for Gold to spike to a $3900 extended fib level exists. Like all parabolic moves in Gold, the late stages create the biggest price movements. Personally, I would be happy with a huge Gold run up to the $3200 level. Words: 1400
According to a recent Elliott Wave theory analysis gold is about to go parabolic reaching $3,495 in June 2013, $6,233 in April 2014, $10,899 in Sept. 2014, $18,712 in December 2014 and culminating in a parabolic peak price of $31,672 on January 16th, 2015! See the chart below. Words: 600
The interim peaks in gold have been spaced 21 months apart over the past 6 years and have seen gains from 80.2% to 97.3%. As such, given the fact that the low of this last correction came in at $1,524 four months ago, we can expect gold to reach a new peak price of $2,750 to $3,000 in 17 months time (i.e. June/July 2013). [Let me explain in more detail.] Words: 976
The Fed is [going to] keep interest rates at zero until the end of 2014 [and that] is as aggressive as it gets and as bullish as it gets for gold. Inflation will be let out of the bag, maybe for the next three to four years. In this environment gold and silver are the best investments around…We are really talking about the next leg higher in this bull market…This is the leg I expect to take gold to $3,000 before the end of 2012.
Around this point in the fractal cycle in the late 70’s, Gold busted out of its channel to rise sharply higher, along with Silver. Silver’s channel top will lie up around $68 to $70 over the coming months which we believe will be reached in 2012. The next higher angled resistance bands for Silver run from $112 to $115, and then up at the $123 area. By the end of the Silver Bull, we expect to see Silver reach $500+. Words: 1765
Silver will climb to $68-$70 in 2 to 3 months once resistance at $35 is taken out… In many ways silver is positioned today like it was back in the summer of 2010… Regarding gold, as goes oil, so goes gold…and the bottom line is that the wind is at the back of the bulls in both the gold and oil markets.
I think scarcity in oil is a dramatic tailwind for gold. Politicians will inflate. They don’t want oil to bring down the economy like it did in 2008. Remember, this inflation will take place with commodity prices already high. So this will create significant inflation. This means higher gold and silver. Gold at $3,000 by the end of the year, easy. Silver $60, $70, easy.