Gold Price - Where is it heading?

[gartley]

I like your charts.
It's true that looking for reasons is very different to just trading the action but as a long-term investor in 4 equities exposed to gold rather than a trader I am looking for reasons that make sense to get out of gold, should they appear compelling.
My sense tells me that while global uncertainty is the underlying driver of what I consider to be a new long-term bull market, how that uncertainty manifests from discrete events is somewhat unimportant. If that "sense" is right then March 2020 might prove for you to be some form of pivot, but unless it lights the fires of global economic growth then it will continue later into 2020 to be subsumed by the lingering uncertainty.
If I can learn anything more over the next few weeks that makes sense I will certainly post it.
Until then we gold bugs enjoyed enjoyed 2019 and look forward to becoming 2020 visionaries .

Yep 2019 certainly was a good year))
Others will say why gold? Especially since stocks in US markets have risen so much the last some months.
Those who where brave enough to hold through the volatility in 2019 have been well rewarded. Unfortunately I am not one of those as I have a fear of holding stocks that are trading at multiples of 25 times earnings and have risen on a dream.
For me it's a case of staying away from what's popular at this point in time and looking to park $$$ in what is unpopular.
2020 will not be a good year for stocks IMO and gold bugs should be rewarded initially in the year but I would not be surprised if gold and gold stocks are later caught up in a potential equity market downdraught in some way

 

[ducati916]

2020 will not be a good year for stocks IMO and gold bugs should be rewarded initially in the year but I would not be surprised if gold and gold stocks are later caught up in a potential equity market downdraught in some way

I would agree for the following reasons:

(a) Gold over the last 5yrs correlated with the Euro and Treasuries (slight time lag);
(b) Until Q4 2018;
(c) When it diverged from Euro and followed Treasuries (correlated with US Dollar).

Currently, both Dollar and Treasuries are experiencing a pullback. May not develop into anything. If it does, then Gold will follow most likely. Gold stocks (Miners) are more volatile than Gold itself and have also outperformed to the upside by +/- 15%.

Currently energy commodities are moving higher led by Oil. The Euro and commodities are correlated. Strength in commodities and Euro, mean a weaker Dollar, which will likely weaken Treasuries. Gold and US stocks are therefore vulnerable currently.

The likely catalyst for commodities is a strengthening Chinese market, obviously a consumer of commodities and Brazil a supplier is also recovering.

Shipping is also following China and energy in coming off of the lows.

In the US Market specifically, Healthcare (outperformer) is coming off slightly. Food & drink is (underperformer) turning up, suggesting some sector rotation is in play currently. There will be others also I suspect.

All-in-all, some (possible) early warning signs for US markets and currently Gold.

jog on
duc

 

[rederob]

https://www.tradingview.com/x/D66bswID/

Yep 2019 certainly was a good year))
Others will say why gold? Especially since stocks in US markets have risen so much the last some months.
Those who where brave enough to hold through the volatility in 2019 have been well rewarded. Unfortunately I am not one of those as I have a fear of holding stocks that are trading at multiples of 25 times earnings and have risen on a dream.
For me it's a case of staying away from what's popular at this point in time and looking to park $$$ in what is unpopular.
2020 will not be a good year for stocks IMO and gold bugs should be rewarded initially in the year but I would not be surprised if gold and gold stocks are later caught up in a potential equity market downdraught in some way

POG has a ratcheting effect and nobody here is grasping how it works.
As the bull market consolidates, and it is surely doing this now, producers are locking in forward supply at considerably higher prices than their legacy hedge books had allowed. This in turn will see gold-based equities realise solid profits in the main through to 2021. In that light it is difficult to think that equities could do poorly in the medium term.
The psychological effect of equities doing well has a positive effect on traded gold. To counteract this ratcheting effect we will need to see something in global markets that no longer renders gold as a practical store of wealth in the prevailing environment.

 

[rederob]

My view is if POG can push through $1485 in coming weeks then we are in for some sustainable upward momentum into 2020, where I see $1650 becoming the next medium term target.

Here's what gold has been doing in the past month:


Again, the psychology of markets suggests that gold will not be meandering into the new year.

 

[ducati916]

1. POG has a ratcheting effect and nobody here is grasping how it works.

2. As the bull market consolidates, and it is surely doing this now, producers are locking in forward supply at considerably higher prices than their legacy hedge books had allowed. This in turn will see gold-based equities realise solid profits in the main through to 2021. In that light it is difficult to think that equities could do poorly in the medium term.

3. The psychological effect of equities doing well has a positive effect on traded gold. To counteract this ratcheting effect we will need to see something in global markets that no longer renders gold as a practical store of wealth in the prevailing environment.

1. There is a ratcheting effect, but it is not significant enough, in the absence of something additional, to break Gold's current correlations. So: from 2004, when Gold is in its bottom percentile (10%) there is an additional 1.3% of juice in the trade. When at the top (90%) percentile, there is additional juice of another 1.9% (normal expectations would be negative in the 90% percentile). This is why Gold often diverges for a month or two when other correlated markets turn lower.

2. Markets are forward looking. Discounting. Those future earnings are already largely in the price.

3. Gold is already currently trading as a currency, not as a commodity. It has diverged from other commodities already. As already indicated, other currencies, US Dollar, might have put in a top. If they have and now trend lower, continuing into a Dollar bear market, this will have an effect on US Treasury paper and Gold, although Gold may lag by a few months.

So what percentile is Gold currently? Currently Gold sits at 67%. Therefore it has not reached that point where it would run on its own momentum for a further gain. On that basis I would expect to see Gold head lower if the Treasury market falls further.

jog on
duc

 

[rederob]

1. There is a ratcheting effect, but it is not significant enough, in the absence of something additional, to break Gold's current correlations. So: from 2004, when Gold is in its bottom percentile (10%) there is an additional 1.3% of juice in the trade. When at the top (90%) percentile, there is additional juice of another 1.9% (normal expectations would be negative in the 90% percentile). This is why Gold often diverges for a month or two when other correlated markets turn lower.

2. Markets are forward looking. Discounting. Those future earnings are already largely in the price.

3. Gold is already currently trading as a currency, not as a commodity. It has diverged from other commodities already. As already indicated, other currencies, US Dollar, might have put in a top. If they have and now trend lower, continuing into a Dollar bear market, this will have an effect on US Treasury paper and Gold, although Gold may lag by a few months.

So what percentile is Gold currently? Currently Gold sits at 67%. Therefore it has not reached that point where it would run on its own momentum for a further gain. On that basis I would expect to see Gold head lower if the Treasury market falls further.

jog on
duc

You should reflect on your historical ability to get POG analyses right.
But thanks, as if ever there were a contra-indicator of probable outcome, your posts are it.

 

[ducati916]

You should reflect on your historical ability to get POG analyses right.
But thanks, as if ever there were a contra-indicator of probable outcome, your posts are it.

I think that you misread my initial post: I was simply agreeing that in the short timeframes, gold could well have a pullback in response to rising interest rates.

The Evidence:

Gold correlates to interest rates in the shorter timeframes.



Self explanatory really.

However, if you are looking for a much longer term analysis, then I can provide that also. I am a long term gold bull, no question.

jog on
duc

 

[rederob]

I think that you misread my initial post: I was simply agreeing that in the short timeframes, gold could well have a pullback in response to rising interest rates.

The Evidence:

Gold correlates to interest rates in the shorter timeframes.

View attachment 99304

Self explanatory really.

However, if you are looking for a much longer term analysis, then I can provide that also. I am a long term gold bull, no question.

jog on
duc

Given that gold is a hedge against inflation then it is somewhat trivial that you get a correlation.
As your chart notes, one problem is that that direction and quantum can differ substantially, as the below linkage shows for shorter time frames:


The real problem for us all is that we do not know what the future holds for either TIPS or GLD, so I revert to what I think is going to be the greater driving force in the long term.
While I am, like you, a gold bull this time around I will look more closely at timing an exit after POG has breached $2500.

 

[ducati916]

1. Given that gold is a hedge against inflation then it is somewhat trivial that you get a correlation.
As your chart notes, one problem is that that direction and quantum can differ substantially, as the below linkage shows for shorter time frames:


2. The real problem for us all is that we do not know what the future holds for either TIPS or GLD, so I revert to what I think is going to be the greater driving force in the long term.
While I am, like you, a gold bull this time around I will look more closely at timing an exit after POG has breached $2500.


1. You seem to have focussed on the unimportant at the expense of the important. The 'quantum' is simply volatility. Yes, gold and gold equities are more volatile. Unimportant. What is important is the strength of the correlation, particularly when there is a lag one t'other. TIPS lag the 20Yr. The 20Yr is currently signalling what?



Difficult to say with any certainty:




Which is why you would also consider the other markets (commodities, etc.) and their inter-relationships. Currently the message is simply pay attention and watch. Nothing much more than that. Oil however might be making a run at $80 +/-.

Also consider the Euro, which correlates to commodity prices:



However the Euro is also a Hedge Fund 'short' in a major convergence trade, which, if it is unwinding, will place selling pressure on US rates. Why would it unravel? Well remember the 1 day Repo market event earlier in the year where there was no repo at any price...Hedge Funds (the bigger ones) access the Repo market and if they cannot obtain short term finance, will need to close out positions, thus reversing their positions if volatility picks up (short Euro long Treasury to long Euro short Treasury).

Either way, something (short term) could well be afoot. Hence my earlier post re. short term. Whether it develops into something (or is already something) a bit longer term is the question.

Possibly absolutely nothing comes of it and gold continues to trend higher based on consumer price inflation, which governments the world over simply ignore. A more sinister manifestation would see Producer Price inflation move higher as producer margins would be squeezed.

Oil is the market where this will show up. Already we have falling rig counts, increased bankruptcies in the shale space and falling capital spending in the majors resulting from low prices since 2016. How fast could they bring supply back online in the face of (significantly) higher prices? Would they even want to?

jog on
duc

 

[rederob]

1. Given that gold is a hedge against inflation then it is somewhat trivial that you get a correlation.
As your chart notes, one problem is that that direction and quantum can differ substantially, as the below linkage shows for shorter time frames:


2. The real problem for us all is that we do not know what the future holds for either TIPS or GLD, so I revert to what I think is going to be the greater driving force in the long term.
While I am, like you, a gold bull this time around I will look more closely at timing an exit after POG has breached $2500.


1. You seem to have focussed on the unimportant at the expense of the important. The 'quantum' is simply volatility. Yes, gold and gold equities are more volatile. Unimportant. What is important is the strength of the correlation, particularly when there is a lag one t'other. TIPS lag the 20Yr. The 20Yr is currently signalling what?

View attachment 99315

Difficult to say with any certainty:

View attachment 99316
View attachment 99317

Which is why you would also consider the other markets (commodities, etc.) and their inter-relationships. Currently the message is simply pay attention and watch. Nothing much more than that. Oil however might be making a run at $80 +/-.

Also consider the Euro, which correlates to commodity prices:

View attachment 99319

However the Euro is also a Hedge Fund 'short' in a major convergence trade, which, if it is unwinding, will place selling pressure on US rates. Why would it unravel? Well remember the 1 day Repo market event earlier in the year where there was no repo at any price...Hedge Funds (the bigger ones) access the Repo market and if they cannot obtain short term finance, will need to close out positions, thus reversing their positions if volatility picks up (short Euro long Treasury to long Euro short Treasury).

Either way, something (short term) could well be afoot. Hence my earlier post re. short term. Whether it develops into something (or is already something) a bit longer term is the question.

Possibly absolutely nothing comes of it and gold continues to trend higher based on consumer price inflation, which governments the world over simply ignore. A more sinister manifestation would see Producer Price inflation move higher as producer margins would be squeezed.

Oil is the market where this will show up. Already we have falling rig counts, increased bankruptcies in the shale space and falling capital spending in the majors resulting from low prices since 2016. How fast could they bring supply back online in the face of (significantly) higher prices? Would they even want to?

jog on
duc

The issue is not with the correlations but, instead, that they are always post-fact. Thus, unless you know the direction of the leading indicator with some degree of high plausibility then whatever else comes after that is word salad. That is not meant as an attack on you.
With regard to oil, we now have USA Permain LTO in play to ameliorate price rises and there is an excellent thread covering this at Oilprice.com. Bottom line is that once prices get over US$60/bbl then marginal producers will unleash. WRT to rig count, it is no longer a valuable metric as walking oil rigs are the new normal.

 

[ducati916]

The issue is not with the correlations but, instead, that they are always post-fact. Thus, unless you know the direction of the leading indicator with some degree of high plausibility then whatever else comes after that is word salad.


Correlations are subject to 'technical analysis' as are any positions and are a fortiori. So if your argument is that the evidence is currently stronger (short term) for continued gold appreciation...yes I agree.

My argument is simply that there are early indications that things may not be as rosy as the current analysis suggests. They may amount to nothing.

The point is tactical, not strategic. It is (potentially) a way to increase profits, where the strategy is a longer term hold.

jog on
duc

 

[rederob]

My argument is simply that there are early indications that things may not be as rosy as the current analysis suggests. They may amount to nothing.

Again, not attacking your points but the analysis here is rudimentary although I am not sure that writing pages more will make a big difference.
I was motivated to return to ASF this year after a very long self-imposed absence after (if I recall correctly) I said I would not post at ASF again until POG breached some very high figure (was it $1000 or $1500 - I can't recall).
Anyhow late last year all the right ingredients seemed to be in place and my early posts in this thread were along the lines of:

What is promising is that the term of POG consolidation has ripened for another pounce on a new high. However, until POG definitively crashes through $1350 methinks it's presently premature.

And a bit later on:

So I am tipping POG to breach $1500 this year with my usual certainty (ie. there is no such thing).

I have no ability to "predict" anything, and make no claims.
But I reckon I can work out trends from analysis far better than many.
In relation to gold, it's a commodity I have tried to divine for over 30 years and tend to get a lot more right than wrong.
Like most of us here, the trick is making money out of what we would like to think we know.

 

[ducati916]

Same problem as NG, a little out of date:



Commercials (at least until 20 Dec.) were leaning against Gold and price had stalled. I accept that in the intervening period, their position could have flippe-flopped.

However compare the April/May position (selling but far lighter thereby 'allowing' the breakout) to the current position where the selling is still heavy (possibly this changes on the update). Assuming for the moment it remains similar/same, do you still think that a new highs are the higher probability outcome?

jog on
duc

 

[rederob]

Assuming for the moment it remains similar/same, do you still think that a new highs are the higher probability outcome?

Most of the short positions have now unwound so downside movements of magnitude will need some sort of obvious trigger. In that light the only meaningful trajectory for gold is upwards.
My view is $1650 this year is a very likely outcome and a spurt to $1800 with a bumpy retrace cannot be ruled out given gold's momentum. It just needs some convergence of nasty short-term geopolitical events to kick it off, eg. more oil refinery/tanker disruptions in the Middle East.

 

[rederob]

Where we are now is akin to where we were around August, where the Bollinger band is playing catch-up. My view is that this present move will reconsolidate above $1550 before another tilt at a new high.


And if history repeats:


So gold bugs can sit back, relax and enjoy the ride, which is of course impossible because when the action starts this ride is more adrenaline than a roller coaster.

 

[ducati916]

So 2 arguments to put forward.




Argument 1.

(a) Inflation (energy) is upticking; and
(b) Interest rates are adjusting to this uptick in inflation; and
(c) Gold has also tracked the rise in inflation since July +/-

(d) Assuming that the Fed does not intervene in the longer dated end of the curve, then rates are set to rise (probably) in proportion to the rate of increase in inflation.

My position is that Gold will track interest rates (with a lag) and if rates are moving higher, Gold either consolidates or weakens.

Argument 2.

From the COT we see (although this is potentially open to change) heavy selling pressure. Why?

(a) The Commercials respond to Producer order flows: thus Producers have been selling heavily. Why?



Energy which is an input to production seems to have bottomed and is potentially moving higher towards a top end of a range. Thus 'margins' are somewhat (potentially) compressed. Hence when there is a move higher in POG, (increased margin) Producers are quickly locking that margin in as QE/QT/Etc are (supposedly) finished and unwinding, thus the long end of the curve is free to limit inflation to the (supposed) 2%+/- target rate.

There are all sorts of arguments re. what is the real rate, but in the absence of anything concrete, the market numbers are the best we have, as manipulated as they are.

In Summary:

If the Fed re-enters the long end and re-instigates some form of QE, Gold definitely goes higher again assuming POO continues higher (which I think it does for a little while at least, irrespective of Fed action/inaction based on falling supply over the next 24 months from US Shale) and a close watch on the US dollar and rates will be required.

What think you?

jog on
duc

 

[tinhat]

Firstly a caveat. I've never followed gold very much and in the past all my speculative forays into gold miners have ended in disaster. That said, currently I am in a couple of gold miners (SAR, AQG) and also hold IGO which produce a bit of gold too. So I am doing a bit of strategic thinking for the year ahead and tossing up where to allocate some funds between gold, nickel and copper miners. I'm bullish nickel and copper but don't have the same conviction over the gold price going forward.

Yesterday I a came across this interview with Andrew Maquire (worth doing a google on him). Worth listening to whether or not you agree with his commentary. In the conversation these guys spruik Kinesis.money That lead me to this podcast about kinesis.money have a quick look into Kinesis.money.

I don't have a view about kinesis.money as a business but the business idea is very interesting. I also don't know if they are or intend to go down the path of using blockchain in their platform, but if they are smart they probably should be.

I also stumbled upon this ted talk by Don Tapscott about blockchain yesterday (its from 2016 but a good introduction as to why blockchain will displace the role of market intermediaries for assets including for fiat currency). The interesting topic that the Tapscott video and Kinesis.money podcast have in common is the huge amount of money that gets transferred internationally by foreign workers repatriating money to their families.

Anyway, being able to store value in non-fiat assets such as gold but transfer that value via blockchain seems to me to be future of the global monetary system; especially given that western central banks are trapped in a cycle of deflating the value of their fiat currencies to feed debt.

For me at least, given the reality that blockchain will revolutionize how assets and value is stored and transferred, the penny has dropped that gold can and will be a more and more important store of value as we see the role of banks and fiat money in the global monetary system inevitably diminish. With these thoughts I am a bit more bullish on the price of gold into the medium term.

 

[rederob]

So 2 arguments to put forward.
Argument 1.
(a) Inflation (energy) is upticking; and
(b) Interest rates are adjusting to this uptick in inflation; and
(c) Gold has also tracked the rise in inflation since July +/-
(d) Assuming that the Fed does not intervene in the longer dated end of the curve, then rates are set to rise (probably) in proportion to the rate of increase in inflation.

My position is that Gold will track interest rates (with a lag) and if rates are moving higher, Gold either consolidates or weakens.

Argument 2.
From the COT we see (although this is potentially open to change) heavy selling pressure. Why?
(a) The Commercials respond to Producer order flows: thus Producers have been selling heavily. Why?
[Energy which is an input to production seems to have bottomed and is potentially moving higher towards a top end of a range. Thus 'margins' are somewhat (potentially) compressed. Hence when there is a move higher in POG, (increased margin) Producers are quickly locking that margin in as QE/QT/Etc are (supposedly) finished and unwinding, thus the long end of the curve is free to limit inflation to the (supposed) 2%+/- target rate.

There are all sorts of arguments re. what is the real rate, but in the absence of anything concrete, the market numbers are the best we have, as manipulated as they are.

In Summary:
If the Fed re-enters the long end and re-instigates some form of QE, Gold definitely goes higher again assuming POO continues higher (which I think it does for a little while at least, irrespective of Fed action/inaction based on falling supply over the next 24 months from US Shale) and a close watch on the US dollar and rates will be required.

What think you?

Nowadays I would only use oil as a consideration if there were a major oil shock, and this clearly would affect economies. As it stands the POO is inconsequential at most levels and anyway gold producers are presently looking at reducing energy costs through renewables and are being successful.
While not something I could ever measure, I had a sense that gold's long consolidation was in part due to big money looking at cryptocurrencies and eventually a good number have learned that physical trumps fiat value. Cryptocurrencies are no longer the poster children they were so they are gravitating back to gold as the best store of wealth.
As you have shown, there are lots of economic indicators out here that will have some influence. But they vary in strength and circumstance and never congeal. If I find one or, for that matter, had found one in the past 30 years, then I would be writing this from a luxury yacht moored at a tropical paradise.
My preference is to keep things really simple:
We appear to be in a market where gold is rising and the reasons are not obvious.
Gold has done this before.
There are no reasoned arguments for the price of gold to crash.
All in sustaining costs for gold production continue to rise.
Producers are now going to be locking-in forward delivery prices in the plus $1500+ range or otherwise delivering into spot which will be hundreds of dollars higher than legacy hedged prices.
The gear change shift in momentum, based on historical trends, is likely to persevere for years.
There will be dips - there always are - so keep an eye out for where value lies and be ready for the next uptick.
Finally, and potentially more importantly, China's increasing global importance cum dominance in world affairs may, in the present long-term gold bull that I see materialising, lead to major disconnects in gold correlations with the many and varied economic indicators, thereby propelling POG above my wildly optimistic dreams.

 

[rederob]

Into the new year and gold is still climbing.
This link is an excellent read and its many charts show how much headroom is still free before the next inevitable retrace.

 

[ducati916]

Into the new year and gold is still climbing.
This link is an excellent read and its many charts show how much headroom is still free before the next inevitable retrace.

Having just read the article where the author refers to a bull market in gold relative to the Aus $ and Yen, both of those currencies are in current bear markets relative to the US $. Of course that may change. Currencies generally lead, which means if policy seeks a strong US $ rates may follow (assuming that the dollar does weaken), which could change the dynamic.

If the US $ starts to fall and Aus $ and Yen rise, then gold enters a bull market relative to US $ and bear market as against the others.

Essentially (the above), says absolutely nothing of any importance about gold as against the US $. It only makes sense to discuss gold against a consistent currency (whichever one you want), but is usually the US $.

jog on
duc