Gold Price - Where is it heading?

[rederob]

The Commercials are simply sellers.

And that means what for the price of gold?
For those who want to understand a bit more about COT reports this is handy.
Changes to aggregate numbers of positions does not tell you what prices were traded, just who traded them.
Nor do the changes reflect the magnitude of price movements.
Nor does it tell you a massive selloff is imminent, as occurred last week, or when it will spike higher, as in today.
As an example, between June last year and now @ducati916's COT report is largely unchanged, yet POG is up almost $400.
I personally do not find that useful, but I don't "trade" so maybe there is something else to it?
Now back to this week's action, as shown below.

My suspicion is that over the weekend the international spread of COVID-19 will have increased markedly and this "fear" will push POG decisively into the $1700 band next week.
At $1700 POG will be overextended by a long margin, so unless you can pick up gold producers next week at their 2019 levels then it might be an idea to let this market return to rationality.

 

[qldfrog]

And that means what for the price of gold?
For those who want to understand a bit more about COT reports this is handy.
Changes to aggregate numbers of positions does not tell you what prices were traded, just who traded them.
Nor do the changes reflect the magnitude of price movements.
Nor does it tell you a massive selloff is imminent, as occurred last week, or when it will spike higher, as in today.
As an example, between June last year and now @ducati916's COT report is largely unchanged, yet POG is up almost $400.
I personally do not find that useful, but I don't "trade" so maybe there is something else to it?
Now back to this week's action, as shown below.

My suspicion is that over the weekend the international spread of COVID-19 will have increased markedly and this "fear" will push POG decisively into the $1700 band next week.
At $1700 POG will be overextended by a long margin, so unless you can pick up gold producers next week at their 2019 levels then it might be an idea to let this market return to rationality.

Can I add that there was a marked fall in the USD last few days, whichcould explain part of this week behaviour.
Are you aware of a GOLD vs currency basket?
I wonder if the peak is not past with a peak around the 4th in such a context? You are the expert Gold wise

 

[rederob]

Can I add that there was a marked fall in the USD last few days, whichcould explain part of this week behaviour.
Are you aware of a GOLD vs currency basket?
I wonder if the peak is not past with a peak around the 4th in such a context? You are the expert Gold wise

I'm just a bit more observant that many @qldfrog and I know the markets do not care for a single word I post here.
Anyhow, this chart compares 3 currencies from the time gold began its present ascent:

The highlighted channel encompasses the entirety of POG in USD$ terms (Gold-coloured line). But you will note that in AUD terms (red/green bars) we are looking good!
(Blue line is POG in Euro terms.)
In my previous post I commented that POG at $1700 would be overextended, yet in the context of movements against other currencies it's got a lot more potential upside without attracting a surge of short sellers.

 

[ducati916]

And that means what for the price of gold?
For those who want to understand a bit more about COT reports this is handy.

This link to the 'Analytical Trader' is filled with factual errors. Some of the more obvious: Open Interest is actually the 'total number of longs or shorts'. It is not 'unexecuted orders'.

The most important error however is in his assessment of 'Commercials'.

Commercials are the chaps with the information flow, the middlemen between the producers and the market. They will scale up and down. They are negative-feedback loop traders.

The 'Analytical Trader' cites them as:

"Commercial players or hedgers are therefore bullish at market tops and bearish at market bottoms."

Incorrect. The exact opposite.

Their importance is in their information flow. They proxy well for the producers. There is an economic axiom that higher prices increase supply. As the price of gold rises, producers will increase supply to increase profits. It is the Commercials that see this increased supply, which is why they are net sellers currently.

Is it possible that 'supply' runs down/out or is held back in the belief of ever higher prices?
Yes, of course.

In that situation you would see a Commercial capitulation. This happens once every blue moon. That is a buy signal.

jog on
duc

 

[ducati916]

Here is the issue with only following a 'chart' on an investment basis. (This does not really apply to pure trading as the pure price is the signal for enter/exit/hold)

This applies more to this thread which addresses POG as an investment and which therefore considers extrinsic factors (or should) that could effect changes in the price (up or down) rather than simply to the 'Chart'.

A chart (any chart) is simply a circular argument.

Why is the POG moving higher? Because the chart says it will/is/etc. That tells you nothing other than the price is currently higher.

There will be causes.
(i) Do we know, or can we know why?
(ii) Is it even important?

(i) In real time, we can infer, based on evidence. Often, the true 'cause' may only be apparent in hindsight.

(ii) For pure 'traders' no, probably not. The chart is sufficient. For understanding the wider economic implications...absolutely is it important. That information is transferrable (confirms/denies) to many other price series.

jog on
duc

 

[ducati916]

Here is the latest COT



Commercials are still big sellers. Their 'timing' is dependent upon the 'big picture'. Currently we have COVID-19 impacting on the macro picture. That (likely) distorts the macro picture and will have an effect on the 'timing'.

jog on
duc

 

[ducati916]

What is the 'macro' situation currently?

With the advent of COVID-19, the recessionary pressures are higher. A recession at this point will create a lot of pressure in the BBB (junk bond) market, now at an enormous $15T. Bankruptcies will therefore create debt destruction and a contraction in supply as these firms go under. That is deflationary.

Assuming Central Banks want to intervene (of course they will) what can they do?

(i) Expand Balance sheets (QE); or
(ii) Helicopter drop money; or
(iii) A bit of both; or
(iv) Something completely new.

What they cannot do is go negative or more deeply negative on interest rates. Simply because negative rates destroy the banking system.

(i) Is inflationary for financial assets.
(ii) If in sufficient size, is consumer inflationary; or
(iv) Unknown.


If (i) as money flows back into stocks, what happens to gold?
If (ii) what happens to gold in a consumer inflation?
If (iv) what happens?

jog on
duc

 

[rederob]

The most important error however is in his assessment of 'Commercials'.
Commercials are the chaps with the information flow, the middlemen between the producers and the market. They will scale up and down. They are negative-feedback loop traders.

To much of your analysis I say "so what"?
For example, hedges or commercials will be most active at market tops as they will lock in high prices to protect their interests. Gold producers will therefore hedge future delivery into the best available price, and that is at market tops.
Next, the axiom you quoted about higher prices increasing supply is true mostly in that marginal producers can process ore that was formerly unprofitable: old mines will re-open. Profitable producers will revisit their data and look to extend mine life while they also tap into defined reserves that were set aside as higher grades were being mined. It makes little sense for gold miners to process their highest grades first in a rising gold market.
With regard to your scenarios above, they overlook the essence of gold as a store of wealth in uncertain times. Until that uncertainty is erased, gold prices will continue to rise at a rate ahead of most market sectors.
The GFC, for example, took hold in 2008. POG averaged roughly $870/oz in 2008. Four years later - 2012 - POG averaged roughly $1670. Apart from the issue of inflation, which has been historically low since the early 1980s, most of your scenarios suggest that POG's rise will continue largely unabated.
Finally:

A chart (any chart) is simply a circular argument.

This is not so for a many reasons.
Charts allow us to identify patterns and trends.
Astute investors can work out the likelihood of patterns repeating and trends continuing by looking in detail at the principal factors driving prices. However, this is about probability and not certainty, so we can never be sure. (Markets are inherently irrational when panic sets in, as has occurred with COVID-19's influences.)
At the macro level COVID-19 is merely a short-term driver of POG, but with medium term implications due to its broader economic effects. It had nothing to do with the creation of POG's apparent bull market, but will reinforce it over coming months. I see it as setting a higher POG quicker than would be expected in run of the mill bull market scenarios (if there is such a thing). Which also means that when COVID-19 is no longer an economic impediment, profit taking will rule for a while and gold will need to reconsolidate.

 

[ducati916]

To much of your analysis I say "so what"?

1. For example, hedges or commercials will be most active at market tops as they will lock in high prices to protect their interests. Gold producers will therefore hedge future delivery into the best available price, and that is at market tops.

2. With regard to your scenarios above, they overlook the essence of gold as a store of wealth in uncertain times. Until that uncertainty is erased, gold prices will continue to rise at a rate ahead of most market sectors.

3. The GFC, for example, took hold in 2008. POG averaged roughly $870/oz in 2008. Four years later - 2012 - POG averaged roughly $1670. Apart from the issue of inflation, which has been historically low since the early 1980s, most of your scenarios suggest that POG's rise will continue largely unabated.

4(a). Finally: This is not so for a many reasons.
4(b). Charts allow us to identify patterns and trends.

5.
A [Astute investors can work out the likelihood of patterns repeating and trends continuing]
B [by looking in detail at the principal factors driving prices.]



6. At the macro level COVID-19 is merely a short-term driver of POG, but with medium term implications due to its broader economic effects. It had nothing to do with the creation of POG's apparent bull market, but will reinforce it over coming months.

7. I see it as setting a higher POG quicker than would be expected in run of the mill bull market scenarios (if there is such a thing). Which also means that when COVID-19 is no longer an economic impediment, profit taking will rule for a while and gold will need to reconsolidate.

1. Why will they be most active at market tops? How will they know its a top? You would seem to be referring to the actual producers. By the same reasoning, they would also be most active at market bottoms (fearing further falls). Producers are price takers (not makers) and 'need' to sell product. You would hope that they understand their industry, but, many seem not to, or they are driven by operational necessity.

2. If gold is a store of wealth does that mean its value cannot fall? Of course not. So why could gold not fall even in times of uncertainty? Surely the future is always uncertain, yet, gold fluctuates.

3. I take it that is your answer: in all scenarios gold appreciates. My take is that two of those scenarios (depending on Bond yields) gold falls.

6. That is probably true.

7. Possibly.

4(a). Circular reasoning takes the form:

A is true because B is true.
B is true because A is true.

Which is exactly the form a chart takes.

4(b). Which is exactly:

A is true because B is true.
B is true because A is true.

5. Then you are not using the chart as a direct tool of analysis. You are engaging in either micro (bottom up) or macro (top down) analysis, which is nothing to do with reading a chart, which gives you a price series.

Your argument falls into:

If B then,
A

As a probability, rather than a certainty. Your two variables are separate and therefore not circular.

However you have largely not engaged in this form of argument. Many of your arguments a purely circular in that they consist solely of a chart based analysis.


As examples of non-circular (but a non-exhaustive list):

Some of the non-circular arguments (gold correlating to debt) have simply been incorrect.
Your COVID-19 (non-circular) argument is largely (I suspect) correct.

jog on
duc

 

[explod]

In 1970 an ounce of gold was about equal to a $20 note.

A $20 note stored under the bed is still $20 and ounce of gold is now $2500, I know which I prefer as my store of wealth.

There are many from old school who know this and in the approaching uncertainties of what is holding paper money up, there will be a growing rush to gold.

However we'll see. DYOR

 

[qldfrog]

In 1970 an ounce of gold was about equal to a $20 note.

A $20 note stored under the bed is still $20 and ounce of gold is now $2500, I know which I prefer as my store of wealth.

There are many from old school who know this and in the approaching uncertainties of what is holding paper money up, there will be a growing rush to gold.

However we'll see. DYOR

But the question today in Australia is:
You can wipe your ass with the 20$ bill, your bullion will not help, will it?

 

[rederob]

But the question today in Australia is:
You can wipe your ass with the 20$ bill, your bullion will not help, will it?

We need @explod's real paper stash from under his bed as our new polymer notes are inclined to spread the love.
But we should not be talking about "dirty money" here, should we?

 

[explod]

But the question today in Australia is:
You can wipe your ass with the 20$ bill, your bullion will not help, will it?

Sorry Ole Pal, but your statement just does not make tangible sense.

 

[explod]

Anyhow the Aussie gold price has just gone up $60 on the open.

Sooner have a dirty ass.

 

[rederob]

1. Why will they be most active at market tops? How will they know its a top? You would seem to be referring to the actual producers. By the same reasoning, they would also be most active at market bottoms (fearing further falls). Producers are price takers (not makers) and 'need' to sell product. You would hope that they understand their industry, but, many seem not to, or they are driven by operational necessity.

2. If gold is a store of wealth does that mean its value cannot fall? Of course not. So why could gold not fall even in times of uncertainty? Surely the future is always uncertain, yet, gold fluctuates.

3. I take it that is your answer: in all scenarios gold appreciates. My take is that two of those scenarios (depending on Bond yields) gold falls.

6. That is probably true.

7. Possibly.

4(a). Circular reasoning takes the form:

A is true because B is true.
B is true because A is true.

Which is exactly the form a chart takes.

4(b). Which is exactly:

A is true because B is true.
B is true because A is true.

5. Then you are not using the chart as a direct tool of analysis. You are engaging in either micro (bottom up) or macro (top down) analysis, which is nothing to do with reading a chart, which gives you a price series.

Your argument falls into:

If B then,
A

As a probability, rather than a certainty. Your two variables are separate and therefore not circular.

However you have largely not engaged in this form of argument. Many of your arguments a purely circular in that they consist solely of a chart based analysis.


As examples of non-circular (but a non-exhaustive list):

Some of the non-circular arguments (gold correlating to debt) have simply been incorrect.
Your COVID-19 (non-circular) argument is largely (I suspect) correct.

jog on
duc

If you need to hedge your gold production and cannot tell a good price from a poor price, you should not be in business! That said, I think you would agree there are many technical indicators that point to when prices are peaking and it becomes more opportune to lock in a forward sale. It is not necessary to "time" the peak in order to hedge advantageously.
Your idea that hedges "would also be most active at market bottoms (fearing further falls)" is nonsensical given the technical indicators available to assist make trading profitable.

An issue relating to investing in gold producers as distinct from other market sectors worth noting is that whenever possible they try to be debt free so that they do not have to hedge. That's one reason I look closely at the hedge books of companies before investing.

Nobody is suggesting that gold's price cannot fluctuate. In trading or investing it's about being on the right side of those fluctuations. If, as it appears, gold is in a bull market then it will cycle through higher tops and bottoms. I have used charts extensively in my posts in this thread over the past year to show these cycles and trends, and point out where gold appears overextended or otherwise. It's not hard!

Your points on charts are absolute rubbish! A chart is first and foremost an objective historical document. It is necessarily "true" thereby defeating your idea that is is "circular reasoning." Analysis of the factors affecting the points on the chart allows us to determine what drives the price in any direction. You seem to be suggesting that we cannot know these things and, without the need to get into epistemology, I suspect you would not this week be buying any investment shares in Flight Centre or Qantas.

In relation to your claim that gold does not correlate with debt I have previously charted how that idea sits. In logical terms if gold is a store of wealth then its value will increase over time as debt levels increase. Part of this fundamental position is based on the weakness of fiat currencies. An ounce of gold here is equal to an ounce of gold everywhere else, however that is not the case with paper money.

At a very practical level I have been reading what you write here to see how it would translate to assisting people invest in gold or gold-related equities. Apart from us agreeing that gold has a good future, I don't find that you have offered many clues. But that door is not closed.

 

[qldfrog]

Sorry Ole Pal, but your statement just does not make tangible sense.

Reference to the 10,000 toilet paper roll..your 20$ billlcan be used for that, not a bullion...
My usual bad humour, blame it on cultural differences

 

[finicky]

A few of the gold producers are up or steady on this AU gold record + asx crash day but all my gold speccies are down 6-12%.

 

[explod]

A few of the gold producers are up or steady on this AU gold record + asx crash day but all my gold speccies are down 6-12%.

Agree, half my goldies down also. I think a run to meet margins on other general stocks purchased on credit is a big factor.

Note Salvini in Italy is calling for a stop on short selling, now that would be very interesting if it were to take hold.

Have always felt short selling wrong.

 

[finicky]

Yes, could be margin related and it only just occurred to me that Australian Gold explorers/developers are not 'risk off' assets to use the term, even in a record gold price environment, far from it, and well down the ladder from proven profitable gold miners.

Don't know about short selling, my antagonism has softened with time but haven't tried it myself - a call to Commsec on the process years ago left me unenlightened. Not to take the gold thread too far off track but a guy over on twitter was telling everyone to short transports and major miners weeks ago - 24 Feb - sounds like's he's in clover. Stocks he mentioned were QAN, FLT, SYD, MIN - TwinTurboCelica @TwinTurboCe1ica

Done nothing today but add to a holding that is prbly now too much for a speccie gold - ARS - all depends on ARS's non-binding agreement of terms holding up with their contract miner, Blue Cap Mining I guess.

 

[qldfrog]

about shorting :
https://www.aussiestockforums.com/threads/what-are-we-buying-on-monday.35247/page-3#post-1060211
as a note between3/02 and today 3 shorts on FMG alone let me cash 83% profit average with around aweek holding each, even playing small an easy $4k to balance some of the losses of my systems
as for Qantas. Were people blind?But thank you
Hopefully my PMGOLD will play well but as you, today I experience heavy fall on the miners GOR and SLR lost respectively 7.3% and 10.2% while NCM went up 2% and RRL a smaller 4.8% fall...
not playing as expected
PMGOLD up 0.2%