Gold Price - Where is it heading?

[rederob]

 

[rederob]

Short-term POG is consolidating in the $1540s and the overall trend is UP.
Downside represents further opportunities for buying into gold producers who will now be locking in sales at around AUD$500/oz more than negotiated in 2018.

 

[rederob]

Next Tuesday sees Trump's impeachment trial underway so unless the Republicans can change the former rules as to how the trial is to progress, I suspect POG to stay high. There were some interesting revelations that came to light over the past few days but so far the Republicans have swept them aside. Trump will only come unstuck if witnesses are allowed to testify and as the Republicans run the Senate, that is unlikely.

 

[ducati916]

Lagging inflation:



jog on
duc

 

[fergee]

@ducati916 chart makes me feel like a cup of tea for some reason

 

[rederob]

Lagging inflation:

That is definitely the least useful post I have seen this century.
Are you able to indicate how it helps us determine anything about the direction of the price of gold?

 

[ducati916]

That is definitely the least useful post I have seen this century.
Are you able to indicate how it helps us determine anything about the direction of the price of gold?

I would have thought it was rather obvious and supportive of your assertions re. gold.

Gold (as charted) lags inflation: therefore it should (according to your argument) rise to pari passu with inflation.

jog on
duc

 

[rederob]

Gold (as charted) lags inflation: therefore it should (according to your argument) rise to pari passu with inflation.

The problem is that you need to know what the trend is going to be or is most likely to be and your chart is just "history."

 

[ducati916]

The problem is that you need to know what the trend is going to be or is most likely to be and your chart is just "history."

Well, when you look at the 'trend' are you not (already) looking at historical prices? To decide what the trend is likely to be, is only an extrapolation of that history, projected forward.

Whereas, the chart, provides the information that: gold has risen less than inflation. Your argument to me was that gold would trend higher because of increasing (monetary) inflation.

jog on
duc

 

[rederob]

Whereas, the chart, provides the information that: gold has risen less than inflation. Your argument to me was that gold would trend higher because of increasing (monetary) inflation.

True - but that is a very long term trend.
What is probable in the next few weeks?
What is probable this year?
What makes movements less probable?
I guess if we are only writing about POG in 5 years time then we are all good.
I just do not find that helpful.

 

[rederob]

Above is the hourly chart for POG and below is the daily chart:

Remembering that POG had been consolidating for many years before it broke out last year, I would argue that gold will trade within the "green" band going forward, with continuing breakouts occurring in the upper "purple" band.

 

[ducati916]

Just referencing the Gold chart posted last week.

US companies have taken on (issued) a tremendous amount of debt. They have used that cash for share buybacks. If you back out that dilution, there is very little if any, earnings growth. Capital Expenditures are very low.

Additionally there has been tremendous growth in ETFs. ETFs hold common stocks on all manner of strategies. They invest in a very momentum based model.

We have already seen at the end of 2018, if rates rise, stocks fall. Stocks collapsed on the Fed hiking. So much so, the Fed had to backtrack quickly.

Can rates (sustained) go negative? No. That destroys the banking system. Look at a long term chart of Japanese banks and the state of European banks currently.

The US dollar has held up so well because foreign investors (pension funds) seeking yield, buy Treasuries (primarily 10 yr) but due to the rise in costs of hedging, cannot hedge out currency risk and are effectively long the US dollar. If currency fluctuations change that relationship so that it turns negative and they have to sell...rates will rise all along the curve.

The current situation (pricing of fixed income) is indicative of deflation, not inflation. Gold can also (and has done historically) rise in a deflation. It is my opinion that that is the current situation.

The turmoil in the Repo market, is largely due to over-regulation of banks and reserve requirements. They cannot fund the Repo market without breaching covenants on reserves. Hence, the Fed is back in with more QE. Just the moderate rise in yield in Oct/Nov last year was enough to break this market. This is probably the very definition of 'priced for perfection'.

If yield rises, it is my contention that POG, falls.

What could drive that outcome?

A consumer driven recession.

jog on
duc

 

[rederob]

If yield rises, it is my contention that POG, falls.
What could drive that outcome?
A consumer driven recession.

Your ideas might prove true, but based on what you say, that conclusion is not supported by the 90 year's of trend data tabled in this link.
Year to year gold has both risen and declined during recessions, and similarly with expansionary policies.
Below is a 25-year chart with shaded "recessions" that compares the US Dollar with POG to see if it offers any clues:



While a weakening dollar from the early 2000s coincided with rising POG ( ie an inverse relationship) the massive spike higher of the USD between June 2015 and March 2017 was reflected only marginally. Moreover, thereafter the relation became positively correlated.
I think divining chicken entrails or tossing darts when blindfolded offers equal insights when it comes to gold.
I do not however discounted that short term movements of the USD are not important considerations, just that other factors seem to drown it out over longer terms.

 

[ducati916]

The money multiplier is pretty much broken.

World GDP is +/- $27T
World Debt is +/- $128T

There are negative interest rates around the world.

If the US enters recession, then the Fed. will likely go negative. Certainly they will go to zero. This will be good for Gold.

However, as seen from the current impairment of the money multiplier, this won't work. The only way forward will be debt forgiveness (destruction). The Bible talks about the 'Debt Jubilee' (Leviticus) which I think has been incorrectly interpreted (today) to argue for debt forgiveness...anyway I digress.

Assuming something like this comes to pass (deflation or credit contraction) how goes Gold?

jog on
duc

 

[rederob]

Another week passes and gold remains firmly on track to reach sustainable plus-$1600s in months to come:

The above is from gold's hourly prices going back over 3 months and the incline is conservative as it was taken from a November peak rather than a midpoint.
It is interesting that during a week where the coronavirus was spreading fear, none of that infiltrated the gold market.
But more interesting was that as the week unfolded and we put both Brexit and Trump's impeachment "acquittal" behind us, gold then rallied for the remaining days. I regard that sign as confirmation that POG's bull market is well founded.

 

[Johny5]

Its good/bad when you can still learn a lesson or two after trading for years. I usually only buy into Gold shares as a hedge or when equities look a little too risky to trade. So when the Coronavirus situation looked to be worsening (mid Jan) I thought I would buy Gold producers. I wrongly thought I would make a bundle, in times like this Gold should go through the roof or so I thought, but it just seems to be loping along. Why I asked myself, then I thought, China uses Gold in its production lines and Chinese buy Gold Jewellery and gifts (especially for New Year). Gold isn't just to hedge or hold wealth in a vault, its actually used for some real things. So with the production lines shutdown, both electronic and Jewellery, so did the consumption of Gold. No wonder the Gold price isn't in runaway territory. Or am I so naive about the Gold market that I am wrong about this too

 

[rederob]

Gold isn't just to hedge or hold wealth in a vault, its actually used for some real things. So with the production lines shutdown, both electronic and Jewellery, so did the consumption of Gold. No wonder the Gold price isn't in runaway territory. Or am I so naive about the Gold market that I am wrong about this too

Yes, but gold "consumption" is more reactive to the price of gold, and this was most evident in the second half of 2019, when ETF inflows dried up and consumer demand slumped.


Despite the above, note that the net change in total gold flows was only ONE percent of total gold held.
Please read this for a better overview.
As to where we are today, I doubt that there are many consumers who think POG is going to decline meaningfully as it has stabilised above $1550 and after having briefly pushed through $1600. In that event, demand reverts to "normal" until the next hefty price rise and, presently, the coronavirus will not cause it.
My take on why the coranavirus has not lifted POG is that lots of investors were instead parking money for bargains in the equity market. Good luck with that.
For whatever reason commodity exposed equities have to date fared well, while travel/tourism exposed equities seem to have largely priced in possible downside.
On the technical side of gold, we were due for a period of consolidation in the $1550-$1600 range so time at the moment is our friend.
Once any and all bargains from the coronavirus scare dry up, POG will gather strength and resume its uptrend.

 

[Johny5]

As to where we are today, I doubt that there are many consumers who think POG is going to decline meaningfully as it has stabilised above $1550 and after having briefly pushed through $1600. In that event, demand reverts to "normal" until the next hefty price rise and, presently, the coronavirus will not cause it.
My take on why the coranavirus has not lifted POG is that lots of investors were instead parking money for bargains in the equity market. Good luck with that.
For whatever reason commodity exposed equities have to date fared well, while travel/tourism exposed equities seem to have largely priced in possible downside.
On the technical side of gold, we were due for a period of consolidation in the $1550-$1600 range so time at the moment is our friend.
Once any and all bargains from the coronavirus scare dry up, POG will gather strength and resume its uptrend.

Thanks rederob, good info. Looks like I have to be patient and allow the flows to play out in their own good time. Unfortunately patients is not one of my virtues, being mostly a day-trader. A little bit of Zen is needed, I will be the grasshopper for now ;-)

 

[rederob]

Thanks rederob, good info. Looks like I have to be patient and allow the flows to play out in their own good time. Unfortunately patients is not one of my virtues, being mostly a day-trader. A little bit of Zen is needed, I will be the grasshopper for now ;-)

Oh well, keep your eyes peeled for the next installment from the ME or Asia where President Trump's interventions keep the pot well stirred.
Otherwise wait through this consolidation before some gung ho trader decides he wants to again massacre the short sellers.
For the more patient investors, the below hourly chart shows where gold has been travelling this year.
All gaps are filled, so while there might be the occasional downside surprise, the trajectory remains positive. Running off patterns alone, the next movement above $1600 will be fast and the probable consolidation will occur around $1620. I would be expecting that to be in place by May.

 

[ducati916]

1.My take on why the coranavirus has not lifted POG is that lots of investors were instead parking money for bargains in the equity market. Good luck with that.

2.On the technical side of gold, we were due for a period of consolidation in the $1550-$1600 range so time at the moment is our friend.

3.Once any and all bargains from the coronavirus scare dry up, POG will gather strength and resume its uptrend.

1. Not according to the charts. Equities declined (marginally) while Bonds rallied.

2. Why was gold 'due' for a consolidation?

3. Gold didn't correlate to the virus on the upside (expanding/unknown virus risk) why do you expect it to correlate on the downside (falling virus risk etc)?



But it correlates very closely to the 20yr Bond (as an example).

The question you should be asking (amongst actually many questions) is:

How low in yield can the highest quality Bond go, which is currently the US 30yr Treasury Bond.

It wouldn't surprise me that it goes to zero (0%).
Will the US go negative (like Europe/Japan)? Possibly.

While rates go lower, Gold will go higher. Rates (furthest out on the curve) have about 3% to zero. How much upside would you calculate for Gold?

jog on
duc