Gold Price - Where is it heading?

[explod]

I guess I have my answer, although I will need to know the serious money is behind this break. According to the volume the later half of this break is momentum.

Time to jump on the retracement with a moderate stop for me.

Open interest is only at at 57% of the peak last year.

I will maintain my idea that it will be late Feb/march before it really gets a leg up. But there is some strength in it now. Got into LGL yesterday and pleased about that. Its break above $3 will be on on Monday and then this will be a good one.

 

[Trembling Hand]

I will maintain my idea that it will be late Feb/march before it really gets a leg up. But there is some strength in it now. Got into LGL yesterday and pleased about that. Its break above $3 will be on on Monday and then this will be a good one.

Nice hindsight

looks like stopping vol to me. But i'm as good as a coin toss :

 

[rederob]

There was a view that gold "failed" because it did not push through $1000 as this recession grew and grew.
The reality is that the impact of the global recession is yet to be deeply felt in its severity.
All the while gold has remained robust, and last night's action confirmed that even in times of tight money it can tack on a 6% gain in a trading session.
It will be interesting to see if gold is now "chased" by those seeing a good opportunity when all else around is in tatters.
At least the taxi drivers are giving it a miss for the moment.
My sneaking suspicion is that gold will hit a high this year that will remain in place for a long, long time.

 

[bankit]

it can tack on a 6% gain in a trading session.

and the HUI tacked on 9%

Bankit

 

[BentRod]

Checking out a few charts tonight and noticed a divergence between Gold and Euro which usually have a reasonable correlation.

 

[CanOz]

There is also divergence on almost all of the USD pairs as well using Stochastic.

Change of trend at hand Bent?

CanOz

 

[BentRod]

Change of trend at hand Bent?

Don't know mate but I noticed the divergence coincided with the Panic in the UK and the breakdown of H&S/Diamond type formation on Cable.

Looks like everyone in UK is buying gold?

 

[Naked shorts]

Its not shooting up to $1000 now like it did march last year because now we have jewelers and industry cutting back on their gold use because they now realize the world is in a financial crisis.

I wonder how far they can cut back

 

[amory]

still not too sure about the dollar/gold relation. must say that dollar has not been looking too healthy lately. where & when will the new admin step in to give it some solid support ... to the detriment of gold? just because it's better than other currencies, does that denote strength? a collapse of the dollar = green light for gold. you think the new lot don't know that?

 

[So_Cynical]

Its not shooting up to $1000 now like it did march last year because now we have jewelers and industry cutting back on their gold use because they now realize the world is in a financial crisis.

I wonder how far they can cut back

Jewelery demand may be waning...but so to is world production, for the 7th
consecutive year the falling production trend continues....almost certain to
fall for the next 3 or 4 as well.

http://www.economist.com/markets/indicators/displaystory.cfm?story_id=12991418

The output of the world’s gold mines fell by 4% last year, according
to estimates in a new report from the GFMS...Supply from South Africa,
once the world’s largest producer, fell by 14%, Australia’s output fell
by 14%, too.

 

[explod]

Its not shooting up to $1000 now like it did march last year because now we have jewelers and industry cutting back on their gold use because they now realize the world is in a financial crisis.

I wonder how far they can cut back

The climb to $1000 last year was gradual at about $US25 per week average, from July 07 till March 08. Last week gold shot up $US60 dollars, most in the last couple of days and we have a long way till March of this year yet. The uptrend line is slightly steeper and the process is much more volatile of late. Jewellers and the general industry have been on the sidelines for some time now, gold is in short supply and people are paying above the paper rpice to get it. Fabricators around the world and particularly in Switzerland cannot keep up to the demands of the wealthy for gold bullion bars.

Even our local Herald Sun newspaper has recommended a gold stock today, now that is very bullish indeed.

 

[sinner]

Even our local Herald Sun newspaper has recommended a gold stock today, now that is very bullish indeed.

I also saw an article last week or maybe the week before clipped by a friend of mine for me in his local paper that was basically just a gold ramp article.

First time you'd have seen that in lord knows how long right? Non goldbugs recommending gold?!
Ignore that though, I never made my decision based on what some doofus in the paper reckons! In fact now that they've mentioned it I am kind of scared!

A real shame markets won't be open tomorrow. Would have been nice to see some strong upward action from the gold miners before the price retraces too far.

Might have to try and catch the retracement with a short on spot after London open tomorrow night? Would like to hear some opinions as to who reckons which market will be responsible for the retracement, I have noticed some strong upward pressure almost every single Tokyo session I have traded since this bad stuff began.

still not too sure about the dollar/gold relation. must say that dollar has not been looking too healthy lately. where & when will the new admin step in to give it some solid support ... to the detriment of gold? just because it's better than other currencies, does that denote strength? a collapse of the dollar = green light for gold. you think the new lot don't know that?

Of course they know that amory. Aside from being a Fed chairman, president of the NY fed: Paul Volcker was also under-secretary of Treasury until 1974 and played a crucial role in the 1971 depegging of USD:GOLD.

It is pretty obvious devaluing the countries currency against gold has a stabilising effect on the economy during recessionary periods. Even Bernanke seemed aware of this judging from various comments he has made.

I'm not sure why you think the new admin will step in and try and put a floor under USD. If anything their stated policy is to return to the "export inflation" days of a steadily trending downward USD. Any too-significant price hikes on the USDX will completely destroy exports as tiny a slice of GDP as they are. With housing construction and consumer consumption about to fall off a very large cliff, they will need all the GDP inputs they can get.

In my opinion they probably can't stop the trend reversal now, they will be
"exporting deflation" for a long time to come, and this will mean a strong USD whether they like it or not.

Friday night was a good example of the new trend which I have already mentioned several times, breaking the old and misconception: that gold and USD are inversely correlated.

I think this bull in major trade currencies (yen, USD, gold, HKD) will continue until things get so rough for exporters that the only option left will be devaluation against gold.

 

[amory]

......................
In my opinion they probably can't stop the trend reversal now, they will be
"exporting deflation" for a long time to come, and this will mean a strong USD whether they like it or not.

Friday night was a good example of the new trend which I have already mentioned several times, breaking the old and misconception: that gold and USD are inversely correlated.

I think this bull in major trade currencies (yen, USD, gold, HKD) will continue until things get so rough for exporters that the only option left will be devaluation against gold.

thank you Sinner. first of all let me say that I like your reasoning. where I cannot fully agree, is "...breaking the old and misconception: that gold and USD are inversely correlated."

I might just mention in passing, that I use the dollar/yen chart rather than the UDX for guidance. a clearcut inverse correlation there! without wanting to start an argument about the why & wherefores, but whether it is a misconception, still remains to be seen.

 

[sinner]

without wanting to start an argument about the why & wherefores, but whether it is a misconception, still remains to be seen.

Hi again amory, no worries, I am not the argument type over stuff like this, my goal is just to learn so very happy to hear differing opinions.

I am not sure I understand what you mean here, when you say you "use" the usd/jpy chart rather than usdx do you mean that you use usd/jpy vs gold to see the inverse correlation?

If so, can you show us an example chart? I picked a few off finance.yahoo.com and can maybe see what you mean on a few of the charts but also on a few there is clearly low/0 correlation.

2 year, 1 year and 3 month. I can maybe sort of see a long term correlation on the 2y, the 1y I will not use because of extreme volatility on the chart but the 3m shows very low correlation.

EDIT: These charts are just a quick whip off the web, nothing much to show here, happy for someone to post better examples.

EDIT2: I can maybe see an inverse correlation on the 1y chart starting from Dec 08, but this is a very small data sample!

EDIT3: One thing is very obvious, long gold short USD/JPY would make a great long term trade!

 

[Cooks]

hey all,

first post and thought i might join in on this discussion... in my humble opinion, this year looks to be the year of gold... it should make a new high on the monthly charts i.e. pass the $1000 mark which will then continue to confirm the uptrend on a longer term time frame...

reasons why? Well, considering the market tries to factor in 6 months ahead... my belief is that the US in now running into hyper inflation mode or will eventually... they will need to continue spending billions of dollars in order to help bail out banks, which will translate into hyper inflation some time very soon... what I think will be a shock to everyone is that at some point the inflationary figures will really take off at a much faster rate... another point to the argument is that all other commodities have taken a real hit except gold. As for the US dollar, we could see a collapse as the spending will really get out of control. Projections for gold... $1,200 - $1,500 by the end of this year... Hold your gold ;-)

 

[sinner]

hey all,

first post and thought i might join in on this discussion... in my humble opinion, this year looks to be the year of gold... it should make a new high on the monthly charts i.e. pass the $1000 mark which will then continue to confirm the uptrend on a longer term time frame...

reasons why? Well, considering the market tries to factor in 6 months ahead... my belief is that the US in now running into hyper inflation mode or will eventually... they will need to continue spending billions of dollars in order to help bail out banks, which will translate into hyper inflation some time very soon... what I think will be a shock to everyone is that at some point the inflationary figures will really take off at a much faster rate... another point to the argument is that all other commodities have taken a real hit except gold. As for the US dollar, we could see a collapse as the spending will really get out of control. Projections for gold... $1,200 - $1,500 by the end of this year... Hold your gold ;-)

Hi Cooks,

There has been plenty of jibber about hyperinflation from the gold bugs for a very long time now. Frankly it belies a misunderstanding of the actual fiscal situation in the US. You base your entire case on the hyperinflation call but give no reasoning why bailouts will translate to hyperinflation "some time very soon". When is very soon?

Another point I take exception to is the constant referral to gold as a commodity. Gold trades on the currency desks at most major brokers, it has an international currency code and is held in reserves by banks internationally. I don't know any banks who hold coffee, nickel and gas futures in reserve.

Can we stop comparing gold to commods and patting ourselves on the back for the lack of relative drop? Oil is really the only commodity I would feel safe pairing with gold in analysis and this is for very specific reasons.

Please don't take this as an attack on your first post, and I don't nescessarily disagree with your forecast. However I do feel the hyperinflation spiel has been spouted a hundred jillion times by the gold bugs already, and if this scenario was remotely correct it would have played out already! Clearly this is not what is happening yesterday, today or two weeks in the future.

IMHO gold is rising now against a basket of currencies for the same reason the USD and JPY are rising against those same currencies. Of course being priced in USD helps on the cross. Those buying to stand in front of the deflationary train are going to get run over, as Mike Shedlock has mentioned. Their dumb luck might save them from a hefty lossbecause gold is a safe bet at this point anyway, but to expect runaway inflation and a runaway goldprice is very very very premature I think (although I could be wrong with new all time lows on the 30y T-bill yield).

I'd like to post you guys this chart from the following article. You can safely ignore the article, it is more misconceptions about money supply and inflation/deflation.

But the charts never lie, I will leave the interpretation of this one up to you!

Source article
http://www.safehaven.com/article-12377.htm

30y T-bill:GOLD ratio long term chart:

 

[Cooks]

Hi Cooks,

There has been plenty of jibber about hyperinflation from the gold bugs for a very long time now. Frankly it belies a misunderstanding of the actual fiscal situation in the US. You base your entire case on the hyperinflation call but give no reasoning why bailouts will translate to hyperinflation "some time very soon". When is very soon?

Another point I take exception to is the constant referral to gold as a commodity. Gold trades on the currency desks at most major brokers, it has an international currency code and is held in reserves by banks internationally. I don't know any banks who hold coffee, nickel and gas futures in reserve.

Can we stop comparing gold to commods and patting ourselves on the back for the lack of relative drop? Oil is really the only commodity I would feel safe pairing with gold in analysis and this is for very specific reasons.

Please don't take this as an attack on your first post, and I don't nescessarily disagree with your forecast. However I do feel the hyperinflation spiel has been spouted a hundred jillion times by the gold bugs already, and if this scenario was remotely correct it would have played out already! Clearly this is not what is happening yesterday, today or two weeks in the future.

IMHO gold is rising now against a basket of currencies for the same reason the USD and JPY are rising against those same currencies. Of course being priced in USD helps on the cross. Those buying to stand in front of the deflationary train are going to get run over, as Mike Shedlock has mentioned. Their dumb luck might save them from a hefty lossbecause gold is a safe bet at this point anyway, but to expect runaway inflation and a runaway goldprice is very very very premature I think (although I could be wrong with new all time lows on the 30y T-bill yield).

I'd like to post you guys this chart from the following article. You can safely ignore the article, it is more misconceptions about money supply and inflation/deflation.

But the charts never lie, I will leave the interpretation of this one up to you!

Source article
http://www.safehaven.com/article-12377.htm

30y T-bill:GOLD ratio long term chart:

Hi Sinner,

First of all you state there "belies a misunderstanding of the actual fiscal situation in the US". Bottom line is that the US is printing money like there is no tomorrow, they are getting into more debt every day when they should be saving money... and when you print money out of thin air, who is going to back the currency in the end??? Lets send china some more "I owe you money" memos The definition of hyperinflation is inflation that is "out of control," a condition in which prices increase rapidly as a currency loses its value... It is common sense, the more dollars you print, the less value each one has... which will eventually translate into a hyper inflationary scenario... do you see prices in the supermarket and shopping stores coming down? No, infact they are going up! Take a look at this food price chart...deflation???



The government can only manipulate and deceive us to a limit, but at some point the cat will be let out of the bag. With the collapse of the UK banking system, the pound is dropping like a fly making their purchasing power significantly lower! Add to that the printing of more pounds to help recover, what does that mean? an increase in prices, get the domino effect? = hyper inflation... That is the "unofficial" bankruptcy of the UK... who is next? I wonder

When is soon? as soon as everyone realises the US dollar is a worthless piece of debt note which cannot be paid back by the US government because they are head over hills in debt and have an economy floating on air... note: china is starting to spend their dollars with mass economic stimulus... why? They probably already know that the US will not be able to pay them back as all their "I owe yous" will be worthless with ongoing printing of dollars, which is going to be needed for bailing out more banks.

Your right, gold is not a commodity.. it is a currency.. I pegged it as a commodity cause it trades alongside all the others on the nymex.

 

[sinner]

Hi Sinner,

First of all you state there "belies a misunderstanding of the actual fiscal situation in the US". Bottom line is that the US is printing money like there is no tomorrow, they are getting into more debt every day when they should be saving money... and when you print money out of thin air, who is going to back the currency in the end???

But they are not printing money and dropping it from helicopters (at least, yet). For the money printed to be even remotely inflationary, it needs to be in the economy, not parked in Treasuries on bank balance sheets.

Not only is this money parked, it is STERILISED pre-entry. Anyone trying to grasp the current market status or even just do a bit of reading can see this.

Excess reserves are clearly rising, but at a much lower rate if you take into account sterilisation. The rate of growth can be extrapolated as the spread between the two lines.

http://ftalphaville.ft.com/blog/2008/10/31/17669/where-bailout-money-comes-from/

Lets send china some more "I owe you money" memos

Err, if they are willing to continue taking it, why wouldn't the US government do this?

The definition of hyperinflation is inflation that is "out of control," a condition in which prices increase rapidly as a currency loses its value... It is common sense, the more dollars you print, the less value each one has... which will eventually translate into a hyper inflationary scenario... do you see prices in the supermarket and shopping stores coming down? No, infact they are going up! Take a look at this food price chart...deflation???

Hyperinflation would mean bread today $1 tomorrow $10 the day after $100. What we are seeing today is nominal inflation for some goods and nominal deflation for others. The basket is definitely mixed, with lots of prices set to come down further after the price of oil is properly factored in!

I cannot see your chart so cannot make specific comment on it, but the latest data (especially for food) indicates prices are falling.

I already pasted this article in another thread, will repost a snippet here for your benefit:

http://business.smh.com.au/business/inflation-slides-to-lowest-since-2005-20090119-7k8j.html

Don Harding from the Melbourne Institute said the inflation gauge suggested the official consumer price index (CPI) had fallen by around 0.64% over the fourth quarter.

That would bring the annual pace down sharply to around 3.3%, from 5.0% in the third quarter, which had been the highest since 2001.

However, measures of core inflation were not so promising. The gauge measuring prices excluding fuel, fruit and vegetables climbed 0.6% in December, lifting the annual pace of inflation to 3.6%, from 3.5% in November.

The trimmed mean, which excludes the biggest price changes in any month, also rose 0.2% in December, while the annual rate rose back to 3.6%, from 2.9% the month before.

Contributing most to the overall change in December were price falls for automotive fuel, and fruit and vegetables. The falls were partially offset by price rises in rents, household supplies, and holiday travel and accommodation.

This means, you need to exclude fruit and veg to get a price hike in the core basket!

The government can only manipulate and deceive us to a limit, but at some point the cat will be let out of the bag. With the collapse of the UK banking system, the pound is dropping like a fly making their purchasing power significantly lower! Add to that the printing of more pounds to help recover, what does that mean? an increase in prices, get the domino effect? That is the "unofficial" bankruptcy of the UK... who is next? I wonder

The pound is dropping like a fly from all time highs. I doubt it will lose much of its purchasing power, sounds more like you are talking about AUD than GBP.

AUD/GBP still <0.5
GBP/EUR still >1
GBP/USD still >1.2
To keep it relatively on topic: GBP/XAU still <700

Where is the loss of purchasing power again? Even after the falls GBP still on top of international currencies in terms of purchasing power.

Around here if you make a claim, people like some evidence to go along with it. So kindly, would you to explain for us, how printing pounds to bailout the banks = increase in consumer prices. Why did several trillion USD spun out of air by the US Fed not amount to even a nominal increase in ANY price index (except for T-bills)?

Again, I am not saying some form of inflation won't turn up, I just think that you are going to be waiting for a lonnnnnnnnnnnnnnnnnnng time for this deleveraging (and hence deflation) to unwind before it's even close to thinking about inflation time.

 

[Cooks]

food prices falling??? you serious! please don't tell me you believe every government report... the other day I went shopping and food prices jumped quite a bit in the last month... Please provide evidence of where you see drops in food prices? woolies? coles? I sure hell don't see them.

you have made your case, time will tell who is right...

 

[sinner]

Hi Cooks,

I don't mean to have a back and forth with you like this really so will keep it quick.

Can see your chart now that I'm home, thanks for that.

Actually, the indicator linked used in the article is an independant (i.e. not government) one, if you had read it

Yes I am serious about food prices falling, do you trust the ABS or are they too governmental for you?

http://www.abs.gov.au/AUSSTATS/abs@.nsf/mf/6401.0?opendocument?utm_id=LN

Q on Q growth price increase down on all sectors (incl food), my guess is will record negatives next Q. This is when you will see actual ticket discounts at Woolies or Coles. You can see the trend ahead by examining futures for soft commods like wheat, soy, cattle, etc. They have all taken a big hit.