Gold Price - Where is it heading?

[rederob]

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)?

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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

1. The coronavirus has been with us for many weeks now and equities are barely affected, overall. As for bond rates, they came off a 2-month low point at beginning of February, and were actually continuing to decline for over a week after the first cases of coronavirus were reported.



2. Gold pushes to new highs and then consolidates:


3. I do not expect gold to "correlate" with the coronavirus. Instead, I see the virus as a portend of continuing market uncertainty.
As a result, I cannot see there being a meaningful dip in POG as this uncertainty is likely to prevail for weeks and possibly months to come.

While bonds and gold give some clues, the real clue is from accumulating debt. That clue is with us for decades. So gold consolidating above $2000 in a few years time should not be seen as a surprise.

 

[rederob]

Updating the weeks action:

 

[rederob]

Here's where we are heading with gold in the near term:

Consolidations run up to 2 months so I am reckoning on March holding on to low $1600s.
In the Newcrest thread it was noted the share price has dipped a fair bit throughout this current period of consolidation, and as a gold equity, it's presently my favourite. Sadly it's already 10% of my portfolio so I won't be adding.
And a quick aside:
If you read OZL's half yearly report today you would have noted they lost $24m on gold hedging. So if you do dive into a goldie, check their hedging position first as presently Oz miners are losing hundreds of millions on poor hedges.

 

[tinhat]

Here's where we are heading with gold in the near term:

Consolidations run up to 2 months so I am reckoning on March holding on to low $1600s.
In the Newcrest thread it was noted the share price has dipped a fair bit throughout this current period of consolidation, and as a gold equity, it's presently my favourite. Sadly it's already 10% of my portfolio so I won't be adding.
And a quick aside:
If you read OZL's half yearly report today you would have noted they lost $24m on gold hedging. So if you do dive into a goldie, check their hedging position first as presently Oz miners are losing hundreds of millions on poor hedges.

As stated earlier in this thread I am very bullish gold in the medium term because block-chain distributed/shared ledger verification of ownership will allow trade to be transacted in physical gold by the masses. The USD will soon be worthless and it will start with the implosion of the paper gold market. The next great inflation is already here it just hasn't bitten yet.

NCM have certainly disappointed the market with underperformance at several of their operations. SAR is my personal favourite of the miners at the moment but I don't do a lot of research into the miners. It will be interesting to see if it makes a higher high (breaks over $4.65).

 

[Dona Ferentes]

Mullokintyre said, elsewhere

Gold in USD at its highest since 2013.
Given that AUD has fallen below 67 handle again, gold in AUD has set another all time record.
Expecting gold stocks to rally tomorrow
.
Mick

..and I do believe it will

 

[tinhat]

Mullokintyre said, elsewhere
..and I do believe it will

What does that even mean? What are you saying exactly?

The USD will be toast eventually. Unfortunately, just as when the US were trying to prop up their dollar against oil, they will try and do so against gold. There will be blood spilt.

 

[tinhat]

Give me some horns.

 

[rederob]

Give me some horns.

You mean like gold... lol.
Overnight we saw the inevitable.

It's too early to say $1600 is behind us, but it's not too early to say $1650 is just ahead.
Yesterday's price band showed clear potential for +$1660 to be hit anytime soon.
In later weeks I will post charts showing that in 2020 a price target of $1750 is conservative based on trend.
Maybe I should reweight NCM.

 

[Dona Ferentes]

What does that even mean? What are you saying exactly?

it means, when the ASX opened this morning and buyers and sellers started trading, GDX is up 2.5% and PMGOLD is up 1.2%

(Straight bat, dry pitch ; Googly that)

 

[rederob]

Nice to see gold add a few more dollars in a steady fashion overnight, with $1613 becoming the short term resistance point.
Below I have mapped gold's weekly action from its initial bull run in the 2000s. Running off tops as indicators we can see that the current bull run is nowhere near as dramatic in pace. I expect this to change at some point, but prefer the way we are going.

From an equities perspective, those who just jumped on board will be please that yesterday was not an aberration. Providing there is no retrace of significance in weeks to come then I expect a shift from traders to investors this year as equities begin to offer decent dividend streams in addition to growth.

 

[rederob]

A quick recap on why we are here:

Upside to June 2020 is shown in the green band above, and downside risk while substantial, remains unlikely in the present environment.
Overnight action saw gold tack on a further $10 and the short term resistance point is 1623.
Long-term resistance goes back to June 2012 and is $1640. The next target from there is $1800 (variously hit between November 2011 and October 2012).
The next post charts the historical high for gold.

 

[rederob]

Back in January 2011 POG was at about the same price as in June 2019 (8 months ago).
However between January and August - in a space of 8 Months - it had closed at almost $1900.
The dotted line in the chart below shows POG's price at posting ($1619). It intersects this chart at August 2011. In the next few weeks POG added another $300 to reach record highs.


We are not yet in a frenetic gold market and I can't see POG doing the same as back then. The chart does, however, provide perspective on what is possible.

 

[rederob]

Below is the 5-minute chart for the part 24 hours.
Its an unusually steady increase of over 2%.
Usually these movements are heavily punctuated with spikes either way, but so far today it's been an uneventful climb.

Oddly today our gold producers did not move much in the markets, but if the present rise of POG sustains until close, I expect that will change.
Given long-term resistance of $1640 is just a whisker away now, it is going to get very interesting indeed once it is cleared.

 

[rederob]

Today's post goes under the heading "The Rorschach test".

With gold about to close for the week, it has seen a stellar run to peak at $1649 before dropping back a bit.
The chart below shows how the past 2 parabolic rises (from points "D" to "A") followed near identical paths.

The key difference is that the shorter period of consolidation in 2020 - shaded blue "sails"- has not so far led to the level of increase experience last December. This might change next week if gold's path continues.
Those who trade the action will not care.
Those like me who try to find answers, will.
@ducati916 might be able to discover an indicator that was responsible, but for now I just put it down to what happens in bull markets, and how there is a tendency for patterns to repeat without there being a clear underlying cause.
Putting the week into perspective with respect to equities, POG is not yet $90/oz higher than last September's peak which carried gold producers to long term highs. But that does translate to POG being 6% higher than when the equities peaked, yet all are now considerably lower.
If that is not a buy signal then I do not know what a better one would look like.

Back to the heading title: what did you see?

 

[ducati916]

Those who trade the action will not care.
Those like me who try to find answers, will.
@ducati916 might be able to discover an indicator that was responsible, but for now I just put it down to what happens in bull markets, and how there is a tendency for patterns to repeat without there being a clear underlying cause.

Every maturity of Treasury debt (10yrs or lower) is now trading (in yield) below the overnight (Repo) rate. This is pricing in (the bond market's belief) that aggregate demand will fall below aggregate supply (even taking into account the Coronavirus), which will create disinflationary pressures (at least the prices that interest the Fed). Gold is correlated Treasury yield (both positively and negatively).

The issue for yields (and therefore gold) going forward is what if that output gap doesn't eventuate? What if aggregate supply falls (far) below aggregate demand? We then have an inflationary environment where yields will rise and gold could fall (as it did from the 1980's through 2000).

Well those conditions are present: this has been the weakest capital investment since the 1970's. Oil which I keep track of has had incredibly weak CapEx and supply will fall, although it could take until next year to really make itself fall. Rising energy prices are (highly) inflationary. The Fed excludes energy prices, but nonetheless, energy and yield correlate as does gold.

With energy (oil) hanging in around the $40/$50 range with current oversupply, if an output gap develops, prices could move back towards the $100 mark quite quickly and yields could double. Get a new President who appoints a hawkish Fed Chair and a run up in yields...

jog on
duc

 

[rederob]

Every maturity of Treasury debt (10yrs or lower) is now trading (in yield) below the overnight (Repo) rate. This is pricing in (the bond market's belief) that aggregate demand will fall below aggregate supply (even taking into account the Coronavirus), which will create disinflationary pressures (at least the prices that interest the Fed). Gold is correlated Treasury yield (both positively and negatively).

The issue for yields (and therefore gold) going forward is what if that output gap doesn't eventuate? What if aggregate supply falls (far) below aggregate demand? We then have an inflationary environment where yields will rise and gold could fall (as it did from the 1980's through 2000).

Well those conditions are present: this has been the weakest capital investment since the 1970's. Oil which I keep track of has had incredibly weak CapEx and supply will fall, although it could take until next year to really make itself fall. Rising energy prices are (highly) inflationary. The Fed excludes energy prices, but nonetheless, energy and yield correlate as does gold.

With energy (oil) hanging in around the $40/$50 range with current oversupply, if an output gap develops, prices could move back towards the $100 mark quite quickly and yields could double. Get a new President who appoints a hawkish Fed Chair and a run up in yields...

jog on
duc

Thanks, but what did you notice, if anything, that caused POG's rise over the week?

On oil, the pricing structure is around LTO which overall is barely profitable below $50. Moreover, while OPEC was once the "swing" producer, it's now the USA. The idea that POO can move close to $100 within the next few years requires a Middle East calamity. Until then the more probable trading range is $45-$65 with possible spikes to around $70.

 

[ducati916]

1. Thanks, but what did you notice, if anything, that caused POG's rise over the week?

2. On oil, the pricing structure is around LTO which overall is barely profitable below $50. Moreover, while OPEC was once the "swing" producer, it's now the USA. The idea that POO can move close to $100 within the next few years requires a Middle East calamity. Until then the more probable trading range is $45-$65 with possible spikes to around $70.

1. The fall in yield across all maturities of Treasury.

2. With the massive underinvestment from the majors combined with the losses incurred in shale, there could very easily be supply issues going forward. Demand is still growing significantly. We have that range currently with oil and the (current) glut.

jog on
duc

 

[rederob]

1. The fall in yield across all maturities of Treasury.

Although there is a semblance of usefulness in that idea for this week, the below chart of POG covers the period 3 February to 19 February where almost every term of Treasuries increased.


So if Treasuries are increasing and gold is rising, and Treasuries are decreasing and gold is rising, I think we need to be careful.

 

[ducati916]

They are both considered 'safe havens'. When the yield on Treasury drops to zero, which it probably will at some point, it will be interesting to see what happens, as there will be no advantage at all over gold.

My question is: what happens to gold (if) Treasuries fall and yield rises? Historically, gold has collapsed. Today, that still seems to be the case as gold correlates to Treasuries.

Debt is higher today than it was in 2008. Low quality debt is again securitised. There is no obvious trigger this time (last time it was interest (teaser) rates reset higher) but there is this output gap, which, will in time, create defaults. True, this is not the Treasury market. True Banks are not directly in the firing line, this time it is Pension Funds and Insurance companies holding, but it is worldwide (again).

So we are sitting at zero (some time in the near future) and a crisis erupts. Negative rates kill the banking system, so negative (should) be out. What to do?

jog on
duc

 

[rederob]

View attachment 100675

They are both considered 'safe havens'. When the yield on Treasury drops to zero, which it probably will at some point, it will be interesting to see what happens, as there will be no advantage at all over gold.

My question is: what happens to gold (if) Treasuries fall and yield rises? Historically, gold has collapsed. Today, that still seems to be the case as gold correlates to Treasuries.

Debt is higher today than it was in 2008. Low quality debt is again securitised. There is no obvious trigger this time (last time it was interest (teaser) rates reset higher) but there is this output gap, which, will in time, create defaults. True, this is not the Treasury market. True Banks are not directly in the firing line, this time it is Pension Funds and Insurance companies holding, but it is worldwide (again).

So we are sitting at zero (some time in the near future) and a crisis erupts. Negative rates kill the banking system, so negative (should) be out. What to do?

jog on
duc

I do not find the correlations of gold and treasuries to be especially meaningful for short term movements, and for the longer term regard debt to be gold's principal driver. Beyond that I will rely on charts and market sentiment for direction.
Gold will always be a fungible store of value so I am not concerned about what "paper" says should or could be more valuable.