Saturday , 22 October 2016

What’s Up (er… down) With Gold These Days?

Gold is universally recognized as a safe-haven investment, a go-to asset class when others look uncertain but this week has been a particularly rocky one for the metal, even with Greece and Puerto Rico’s debt dilemmas, not to mention the recent Shanghai stock market decline. In fact, gold has traded down for 10 straight sessions to end the week at its lowest point in more than 5 years.

The edited excerpts above, and those below, come from an article* by Frank Holmes ( originally entitled 3 Reasons Why Gold Isn’t Behaving Like Gold Right Now and which can be read in its entirety HERE.

The following 3 factors are affecting gold’s behavior, in particular, right now:

1. A Strong U.S. Dollar

Like crude oil, gold around the world is priced in U.S. dollars. This means that when the greenback gains in strength, the yellow metal becomes more expensive for overseas buyers. With the U.S. economy on the mend after the recession, the dollar index remains steady at a 12-year high.

2. A Possible Rise in Interest Rates

Federal Reserve Chair Janet Yellen continues to hint that interest rates might be hiked sometime this year, perhaps even as early as September. When rates move higher, non-yielding assets such as gold often take a hit.

As you can see below, the 10-year Treasury bond yield and gold have an inverse relationship. When the yield starts to rise, investors might find bonds a more attractive asset class.

click to enlarge

3. A Slowing of Manufacturing Activity Globally

There has been a downtrend in manufacturing activity across the globe…[and] our research has shown that when the one-month reading of the global purchasing manager’s index (PMI) has fallen below the three-month moving average, select commodity prices have receded six months later.

click to enlarge

China is the 800-pound commodity gorilla, and its own PMI has remained below the important 50 threshold for the last three months, indicating contraction. The preliminary flash PMI, released today, reveals that manufacturing has dipped to 48.2, a 15-month low. For gold and other commodities to recover, it’s crucial that China jumpstart its economy.

In the meantime, we’re encouraged by news that the slump in prices has accelerated retail demand in both China and India, which, when combined, account for half of the world’s gold consumption.

Demand/Supply Dynamics

a) Demand

We look forward to the second half of the year, when gold prices have historically seen a bump in anticipation of Diwali, which falls on November 11 this year, and the Chinese New Year. As you can see, average monthly gold performance has ramped up starting in September.

click to enlarge

b) Supply

Gold is down 15 to 25 percent below production levels that might cause some companies to halt production and the combination of the two could well help prices find firmer footing.


Related Articles from the munKNEE Vault:

1. Investors Should Choose Silver vs. Gold During Financial Crises – Here’s Why

The notion that gold is the premium SAFE HAVEN during times of financial crisis doesn’t hold true if we go by the actual data. When the world stood at the brink of a total economic and financial meltdown in 2008, investors overwhelmingly choose silver over gold, which means, when the next much more dire financial crisis appears, physical silver demand will more than likely totally overrun supply. Got Silver?

2. Does Gold Really Act As ‘Insurance’ In Times of Financial Market Stress?

This article takes a step back and looks at the bigger picture related to gold including long-term trends, and sets out some key characteristics of gold which are worth considering when (or if) allocating some part of an investment portfolio to the world’s favorite precious metal.

3. What Could Possibly Be A Better Safe Haven Than Gold? Read On

Some market commentators are touting gold as a great portfolio diversifier, convincing investors that the precious metal could benefit their portfolio but there may be better alternatives than gold if the motivation is to find a hedge for economic uncertainty or political unrest.

4. Where Should Your Money Be In This “No Safe Haven Era”?

How have the traditional safe havens performed since the great financial crash of 2008/2009? What can we expect from the traditional safe havens going forward? Those are the two questions we try to answer in this article.

5. If You Don’t Think Gold IS a ‘Safe Haven’ Then You Don’t Know the Meaning of the Term!

It would seem that there is a considerable lack of understanding about what the term “safe haven” actually means when it comes to gold. Let me explain just what it means – and does not mean. Words: 740

6. Gold as a Safe Haven is Worthless!

If there is one thing we’ve learned about gold in recent years – and recent days – it is this: gold is not a haven investment… There are many theories about gold’s correction. [Let’s take a look.] Words: 781

7. Which Investments Are the Best Safe Havens In A Financial Crisis?

As investors look for safe havens in a potential market panic, I am reminded of the adage, “In the land of the blind, the one-eyed man is king.” Today, I see several metaphorical one-eyed men in this land of the blind that could serve as safe havens were there to be a market panic. All of them have significant flaws. In this post I would like to discuss them one by one. Words: 780

8. Should A Significant Portion of Your Portfolio Be In Gold?

If you had invested in gold in 2004 you would have earned about 10.4%, annualized. I am writing this article, though, to say that you should not consider gold to be a good long-term investment and you should not have a significant proportion of your portfolio in gold. Let me explain.

9. The Best Advice You Will EVER Receive On “How to Invest In These Dangerous Times”

Those that read this site regularly know my pessimism regarding the future. People frequently ask: “What do I do to protect myself and my family?” or “What should I invest in?” While this discussion will not provide you with specific answers, it should provide a framework that may be useful.

10. Stocks Are Better Investments Than Gold and Bonds

Investing is often described as the process of laying out money now in the expectation of receiving more money in the future. Investment possibilities are both many and varied. There are three major categories 1) currency-based investments, 2) gold bullion and 3) investment in productive assets, and it’s important to understand the characteristics of each. [Let me explain the differences and why I choose the latter.] Words: 1780



  1. I wonder why those that are forcing PM;’s value to go downward against paper money that is being printed “as Needed” don’t force a phony “PM’s crash” just because they can.

    I look forward to some Country, like Greece (that is getting their currency mauled by others) to proclaim that their PM’s can be only traded with actual (physical) PM holdings, imagine what that would do to the value of PM’s Globally!

  2. It’s surprising that in an otherwise thorough article the most important event in the gold price crash recently is not mentioned. I am, of course, referring to the dumping of 57 tonnes of paper gold in 2 minutes last Sunday. This price smash had nothing to do with physical gold, as the article implies.

    • Alan – I agree, yet another DUMP using paper to short Gold, I wonder why that is even allowed any longer, unless the biggest traders use it to force Gold ( and other PM’s) to appear to “lose value”. Left unsaid is “against Paper PM’s…