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Gold Price - Where is it heading?

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1. (b) Agreed, ETFs are not spot prices, which is why I added the +/-, to demonstrate that these are not exact prices. So you are telling me that the discrepancy is so great that from spot prices that they are materially different? (a) That is true and although on that basis Silver has outperformed Gold by say 2%+/-, the fact still remains that Silver is (-15%) +/- and Gold is +11% +/-

2. Your argument is simply an argument to 'win an argument'. If you look at the big picture, silver is currently underperforming gold. That is a fact. That fact is only important because silver, historically, has not lagged this much for this long. That is a material difference (in my opinion) and I am curious as to why that might be the case. The spread is currently +/- 26%.

Mr AusTrader mentioned the ratio: You can see when they were both money, their ratio was largely constant. The tiny blips would have been new unexpected supply from newly discovered lands etc.



We have to go back to July-December 1941 = 99.76 ratio (high spike on chart) to find an equivalent value. That was Pearl Harbour territory. Then we have June-July 1991 = 91.04 ratio.

January-June 2009 ratio = 69.85, falling to 42.01 during January-June 2011.

So Mr Rederob, how would you explain the 2009-2011 period? Which from an economic perspective, is very similar: ie. rapidly falling GDP, fast increasing unemployment, debt destruction, etc. This current period is actually even accelerated over the 2008-2009 period as the quarantine of the world happened almost overnight (yes, I exaggerate somewhat).

Yet, Silver, is lagging by (-26%) and showing no real signs of stirring currently.

Is it an issue?
If not, why not?

jog on
duc
 

1. I don't really remember paying too much attention to the time lag as an issue at that time. This suggests to me that the time lag probably wasn't that significant. However, if it was, I stand to be corrected. Are we talking (for the lag) in days, weeks or months?

2. So it is (still) expanding. My chart above has it at 97.29.

3. Indeed, Mr Rederob does not accept ETF prices as this clearly leads to significant errors. My bad. But you have rectified that issue for him.

jog on
duc
 
So trying to summarise in a few lines:
Please correct me when wrong

Mr Ducati believes that we are seeing a relative peak gold due to anxiety as demonstrated by silver ratio divergence
POG will fall as soon as markets stabilise as we are not in a secular gold bull, just circumstantial fear based run
Whereas Rob sees us in a secular bull as with the dumping of free money everywhere, money value decreases and we are headed to inflation

Not sure where i stand, been waiting for inflation since GFC, and except for rates and house prices..till now, still looking
The West is deflationary due to age pyramid, however strongly i would like gold to go high..i am exposed: : my thinking head will go with Mr Duc who has more knowledge than I.
For what ii is worth in term of short term indicator:
Both my systems have had a few buys last week and on Monday, and a high proportion of these are silver and gold miners.hopefully a sign of short term strength
 
Your analysis is unsound and I have tried to explain why many times.
Below are 2 charts, essentially the same, except the time periods differ by 1 week:

In the above chart silver clearly outperforms gold to the tune of 13 percentage points.
Below shows an an almost complete reversal and gold outperforms by 12 percentage points:

I hope the above is clear.
If you were trading pairs then the above differences based on starting dates would require you to adopt contrary positions in each trade to come out ahead.
This leads to your second point where you say:
ducati916 said:
2. Your argument is simply an argument to 'win an argument'. If you look at the big picture, silver is currently underperforming gold. That is a fact.
Click to expand...
What you have not grasped is that is that depending on how far back we go we can get a different picture. For example, below is the monthly chart comparing the metals since 2003 and it shows that silver has outperformed:
What is truly stunning about the above chart is that had you purchased silver in early 2003 it would still be giving you a higher percentage gain today than if you had bought gold.
I could ask if 17 years is the "big picture" but you will probably find another excuse for clumsy analysis.

I have no interest in explaining the relative performance of gold and silver recently. Apart from on 16 March their relative movements have varied only marginally since the virus took hold.
 
Apologies for a data error in the for the comparison I posted above in the chart that related to the period from 2003. This chart did not load the silver prices prior to 2006 for some reason, and I thought the data was hidden below the Goldprice logo: it was not.
The chart below uses the same start date, but I ended the period at a point where each metal had achieved roughly the same price increase over 15 years.
The point I am trying to stress here is how important buying and selling dates are to profits, which I thought would be obvious.
On Friday gold closed well below its recent high. If you think it won't reclaim that high, then don't use it as your "starting point."
I think it will, and tomorrow will add some gold shares as I don't trade futures or physicals.

With regard to @qldfrog's summation, I view a trend that has remained firmly in place over several years to be a good basis for thinking gold will continue to rise because the ingredients that drove it into the trend have intensified.
 

1. And as many times as you repeat the same argument, you remain incorrect.

2. Your two initial charts, chart the the short term fluctuations, (which we could call micro) and which may interest day-traders, but for a macro analysis, are irrelevant. We are talking macro because you have called this a new 'bull market'. In other words, you are making a secular call. As am I, in that I'm calling this a cyclical rally in a continuing bear market, which is secular. Therefore fluctuations over the last two weeks are meaningless, unless they could confirm something. That they flippe-floppe, just evidences that they are fluctuations in a larger trend.

3. Incorrect. Pairs trades are predicated on the dominant spread. Short term fluctuations allow entry points. So if I was trading that the spread would narrow, I would be long silver, short gold. I could use the wider spread of gold/silver to open the trade. If I thought the spread would expand, I would be long gold, short silver and I would use the expanded spread of silver/gold to open the trade.

4. I agree that cherry picking dates can distort reality, hence why I go back as far as possible. The fact remains that Gold is currently outperforming Silver. Look at the ratio chart...is there any doubt?

5. So your argument is: if you bought silver at (almost) its absolutely lowest point in history, you would still be showing a profit: yes, correct. Your point is what exactly?



6. So if we bought gold in 2003 and held it today, we would also show a profit:



I think, just looking at the two charts, gold is probably the one I would like to hold mostest, even though your position is that silver has outperformed! LOL.

7. Of course you don't. I always offer, but I realise that I will never actually be taken up on that offer by yourself.

jog on
duc
 
ducati916 said:
2. Your two initial charts, chart the the short term fluctuations, (which we could call micro) and which may interest day-traders, but for a macro analysis, are irrelevant.
Click to expand...
I charted how over a selected period of 15 years silver mostly outperformed gold. That was a "big picture." These pictures vary over different timeframes.
I showed how varying a starting point by just one week can be the significant determinant of a dominant outcome in respect of gold or silver. This occurs when relative price movements are divergent despite the pairs always moving in the same direction during that period.
I don't share your view that a "micro trend" means the same as a consistent trend over a month.
The point to most investing (or trading I suppose) is to choose to place your money on what gives the better outcome over your selected time horizon. The indexed price charts I have presented above demonstrate the relative importance of timing on the investment product selected.
I don't "argue" these points as they seem self evident.
 
So what are the commercials up to?





Selling both, but selling gold more heavily. Even on the 'dip' in silver, Commercials remained selling. That is somewhat unusual, normally Commercials buy the dips to support price, but not this time. Without the Commercials buying silver, silver (my guess) will continue to struggle to move higher. You could argue that although they didn't buy silver, they also sold it less aggressively (except for that single dark bar) which indicates heavy selling on the rally higher.

jog on
duc
 
This chap is interesting as he still uses oil as an indicator for gold:

Algo Trading System Gold Report For 04/20/2020

Based on ongoing analysis of the Gold market, it is clear that no single indicator, pattern or calculation accurately predicts the future market movement 100% of the time.However, when certain indicators and algorithmic strategies for the Gold market are employed and measured cumulatively, a more reliable overall market bias can be established.The net result of each of the indicators and algos specifically designed for Gold are summarized below.


For the most recent close for front month Crude Oil, a reverse moving average summation is showing a bullish bias.

The reverse momentum indicator for Crude Oil is showing a bullish bias.

The compiled RSI algo indicator is showing a bearish bias.

Based on 9 algo trading strategies developed with the Strategy Factory methodology, the current aggregate strategy status score is +3.00, which indicates an overall bullish bias.

The aggregate stochastic algo indicator is showing a bullish bias.


Overall, the current algo based bias for Gold is BULLISH.


The algorithms used to establish the bias use historical data, and do not anticipate any news related price shocks.The algos are all short term swing trading strategies, with trade duration of a few days to a few weeks. All strategies have a profitable hypothetical backtest over the past 8-10 years. Algo indicators are standard indicators, computed over a wide range of input values.

jog on
duc
 
So some further thoughts:

The aggressive sell-off in crude oil hasn’t helped gold. The Russian central bank has been a strong buyer of gold in recent years. That buying has now stopped, and depending on how long it takes before crude oil recovers, we could potentially see Russia become a net-seller. After all, they will have to cover the shortfall of oil slumping below their budget break-even, which is somewhere close to $40/b.

Silver’s complete collapse to an 11-year low in March drove its relative value to gold down by more than 50% below the five-year average. A combination of inadequate liquidity to withstand the aggressive dash-for-cash phenomenon and its correlation to economic growth are helping drive the steep loss. Once the market stabilises, we see the potential for a strong recovery with traders focusing on its relative cheapness to gold.

They don't mention (if the Russians do sell-off gold) what impact that would have on the gold/silver ratio. As to silver lacking 'liquidity', sounds dubious, rather silver at the open of 2020 had no profits to offset losses in other markets, unlike gold which had some profits to take.



Mr Rederob's silver is outperforming argument looks thin on this chart.

Gold’s failure to rally as COVID-19 spread and economic uncertainty rose has brought back memories of 2008. During the early part of the GFC, all assets were sold as investors deleveraged to realise cash or pay for losses elsewhere. In the early weeks of the crisis, gold suffered a 27% sell-off to $725/oz before beginning an ascent which eventually took it to $1920/oz.

The rally started in gold mining stocks before moving to gold and it took another few months before the stock market finally bottomed out. With this in mind, we are keeping a close eye on gold mining companies through the Vaneck Major Gold Miners ETF (Ticker: GDX:arcx). We also have to keep in mind that the cost of fuel, which accounts for 20% of mining costs, has collapsed. Gold miners have therefore, at least for now, not suffered the hit that the drop in gold would otherwise imply.

Just how long was this lag to move after 2008? This seems to be an important point.

Gold to Yields:



Have to watch those Bonds.

jog on
duc
 
Good point. If GFC was any guide, there is a sell off in Gold and Silver before a sustained rally. Like qldfrog I also have a small exposure because I believe the flight to hard assets and to safety and global QE's will have a +ve bias on Gold/Silver than the other argument about everything deflation scenario.

I also emphasise the advantageous scenario the miners are in right now. As shown by ducati916 commodity performance % chart, miners are able to increase their margins substantially due to lower mining costs due to depressed Oil prices while maintaining the high sale prices due to relatively high spot Gold/Silver.

Aussie miners have one more advantage due to depressed Au$, because they can sell their cheaply mined commodities at higher US$ spot prices to the world markets. So in the case of Gold, Aussie miners are looking at spot prices of around Au$2600 per Oz, even if they spend half of that amount in Au$ to pull the stuff out of the ground with cheap fuel it still looks rosy in terms of profit margins, Yum !
 
You have borrowed from Ole Hansen's copypasted commentary and charts which are almost 3 weeks old, and gold, for example has increased over 10% this year: his chart shows it in negative territory.
The commentary you lifted from Seaspray was a week old and neglected to notice that gold had increased by some $300 over the 3 weeks prior to their posting.
The point I have made about silver many times is that in the past month it has outperformed gold, so your comments about my analysis are not sound.
With regard to gold's post GFC performance in 2008, a chart was linked here. About the only similarity I would give credence to would be the accumulation of debt which took years to get under control.
A point to note: Over a year before Lehman's collapse in September 2008 gold began a parabolic rise, adding over 50% in 7 months. Were gold to have emulated that in the present bull run (including through the post-COVID-19 period) then POG would already have claimed a plus $2000 peak. I see $2000 as a staging point to nearer $3000 over the next 3 years.
 

1. Yes I have. Yes they are. The reason: because the discussion was in relation to the time lag incurred in 2008. This snippet addressed that time lag, which I found interesting. Clearly you did not.

2. Correct. I'm sure people reading the thread are capable of looking up the current price.

3. So:



(a) We see that silver has yet to exceed its September 2019 and February 2020 highs.
(b) We see that gold has.
(c) We see that on the last indicated price, silver declined 1.84% and gold declined 2.15%

OMG! Mr Rederob, you are correct, silver outperformed gold.

4. If I read that correctly, you are saying the only similarity to 2008 is the accumulation of debt. No other references or similarities to 2008 are currently present. Is that a fair summary?

5. Correct. In September 2007, gold took off to the upside as did silver. What was the reason for that?



jog on
duc
 
By June, on trend, I anticipate POG will have consolidated above $1700.
Here's how we stand today:


I see a lot of competition for money in the equity markets as COVID-19 lockdowns dissipate as the year draws on. I won't be surprised to see substitution effects from gold hold holders channeling profits into equities which will, potentially, offer stronger percentage gains in the short term.
However, I regard these as "ratcheting" effects which will allow gold to consolidate rather than collapse.
That's the extent of my thinking on future price moves.
 
So an update:




We zoomed in to the 2-hour chart to show you something specific that happened in the last few days and to provide the likely explanation for it.

Namely, the miners started to show odd strength relative to both: GLD and SPY, and we marked it with a green rectangle.

The relative strength started in the final part of the previous week, when the GDXJ approached the $36 level. Instead of falling further, just like GLD did or at least like the SPY did on Tuesday the GDXJ stayed above it.

The gold trading tip for today would be always question such situations before taking them at face value. Why would that be the case? What factor could have been strong enough to trigger such strength? Or maybe in the absence of such a factor was the mining stock sector really strong enough to withstand the powerful bearish forces in the form of declining GLD and SPY?

There is a good reason for the miners strength. Its the $36 price level itself. Or, more precisely, the strong support that it provides.

This is the price level from which junior miners rallied in early March.

This is the price level at which juniors reversed on an intraday basis on March 9th.

This is the price level that stopped the decline on March 10th.

And this is the price level that once broken on March 11th triggered waterfall selling that quickly took the GDXJ below $20.

This is also the levels that stopped the late-March rally, and the level that initially served as resistance on April 9th.

It also served as support after the initial April 15th decline.

Given that this price level worked as both: support and resistance so many times, is it really surprising that without a major breakdown back below the previous 2020 highs in the GLD ETF, this level is holding strong?

Its absolutely normal. Lets not overestimate this supports importance, though. This level doesnt invalidate the bearish gold price forecast, it only changes its shape a bit. Instead of declining just like GLD, the GDXJ is taking a breather above $36, but once GLD moves decisively lower, the GDXJ would be likely to break below this level, and slide profoundly catching up with the pace of the slide.

Please note what happened on April 9th and April 13th. The miners first declined (about $2) based on the resistance, but once they finally broke above the $36 level, they soared until topping almost $6 higher. Whats happening now? The GDXJ moved higher first (about $2) and as soon as it gets the bearish lead from gold, its likely to catch up, by breaking below the $36 level, and sliding much further.

The very same chart features a specific self-similarity suggesting that the junior miners are likely to get this kind of bearish kick shortly. Not only is the current situation in the GDXJ itself very similar to what happened in mid-March, right before the slide, and right before the breakdown below $36 its also the case with the GLD ETF.

The GLD is moving back and forth around its blue moving average, while the RSI indicator (note: everything on the chart is based on the 2-hour candlesticks, not the daily candlesticks) is moving around the 50 level.

The similarity in each ETF on a stand-alone basis might just raise an eyebrow, but the fact that both similarities aligned at the same time along with a breakdown in the general stock market and rallying USD Index should make ones both eyes wide open.

The next big move for the precious metals market is likely to be down, and its likely to be really significant.

Thank you for reading todays free analysis. Its full version includes details of our currently open position as well as targets of the upcoming sizable moves in gold, silver and the miners. We encourage you to sign up for our free gold newsletter as soon as you do, you'll get 7 days of free access to our premium daily Gold & Silver Trading Alerts and you can read the full version of the above analysis right away. Sign up for our free gold newsletter today!


Thank you.


Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager

jog on
duc


 
I am not much of a chartist and I agree with rederob, that the starting point makes a huge difference to the relative performance of two instruments. But I saw the Gold and Silver performance displayed on a website amongst other commodities and currencies, so decided to post it below:
 
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