Gold Price - Where is it heading?

[rederob]

Big day for my two ASX African gold plays -

https://www.barchart.com/stocks/quo...&sym=PRU.AX&grid=1&height=500&studyheight=100

https://www.barchart.com/stocks/quo...&sym=WAF.AX&grid=1&height=500&studyheight=100

Well done.

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:
View attachment 102572

So the below chart starts at 20 June 2019 when POG broke above long term resistance, and indexes the price of silver with gold. I deliberately stopped it at 4 March 2020 as had we not had the benefit of hindsight, then silver looks to have got the jump on gold on a decent uptrend. Alas, it was very shortlived.

 

[rederob]

I see $2000 as a staging point to nearer $3000 over the next 3 years.

Not just me:

“As economic output contracts sharply, fiscal outlays surge, and central bank balance sheets double, fiat currencies could come under pressure. And investors will aim for gold. Hence, we mark-to-market our forecasts and now project an average gold price of $1,695/oz in 2020 and $2,063/oz in 2021... we have also decided to up our [18 month] gold target from $2,000 to $3,000/oz.” ​

I reckon their average price target for 2021 will get revised upwards before this year is out.

 

[rederob]

Why haven't Oz producers reaped big rewards from the past few days' POG increases?

Because while benchmark spot prices have hit recent record highs, AUD gold prices have flat-lined. Put another way, since XAUAUD peaked on 24 March, by comparison XAUUSD has increased by over 7 percentage points.

 

[rederob]

A weak start to this week:


Commitment of Traders data showed net longs dropped back, so speculative swings are not likely to be as severe in the near term.
Note also that trade volumes have eased right back since late March (March itself was exceptionally high by normal standards).
Equity markets are bouncing around a fair bit at the moment and, with the expectation of a bounce, there seems little need to rush to park money in gold.

 

[wayneL]

Uh oh

Thin end of the wedge perhaps? Tin foil hats all round?

 

[aus_trader]

Uh oh

Thin end of the wedge perhaps? Tin foil hats all round?

This is one of the problems of mining investments in some foreign nations.

The government just comes around to confiscate the company assets that cost millions/billions of dollars and years of hard work to research, explore and develop...

"Oh you are going to get a return for all the money you sank into the ground all those years are you ? We'll solve that problem, by nationalising the deposit and that mine you just built and filling our pockets with mining revenue You can just piss off now empty handed with a huge hole burnt in your pocket "

I think this is one of the reasons why Australia and Canada are considered prime real estate to explore and build mines in. Foreign companies pour in billions even though the cost of doing business e.g. labour costs are high. They'd rather get some return on their billions invested than investing in a country where the asset will be stolen once productive and profitable.

 

[rederob]

Many looking at gold prices think it has been a stellar performer over the year. But in reality our All Ords and the Dow Jones tracked it relatively closely until pandemonium broke out in mid-February and global equity markets reacted to the effects of what ultimately came to be national lockdowns.

The issue to resolve is where do things go from here?
My sense is that in the near term equity markets will perform relatively well, and the POG will hover between $1680 and $1750.
As markets try to return to normal we will get a better idea of who the winners were, and vice versa.
As the dust settles over equity markets, investors will come to realise that massive debt burdens will need to be unwound before overall profitability returns.
I therefore see the second half of 2020 being exceptionally strong for gold prices.

 

[ducati916]

1. As the dust settles over equity markets, investors will come to realise that massive debt burdens will need to be unwound before overall profitability returns.

2. I therefore see the second half of 2020 being exceptionally strong for gold prices.

1. That you mentioned 'equity markets', I am taking that to mean debt burdens held by listed companies. You seem to be implying that the cost of capital (debt) is somehow going to impede profitability? With the cost of debt at historical lows, how do you come to that conclusion? To support that conclusion, really you are stating that demand will remain at or close to current levels. This could be due to the massive spike in unemployment. So potentially, companies profitability could be impacted.

Zero consumer spending however is not inflationary, it is deflationary. Companies declaring bankruptcy is deflationary. Gold does not do well in a deflationary environment.

Last week's COT:




Still no Commercial support for either. Gold went pretty much nowhere this week. This rather suggests that this week's COT will show a similar picture to last week's.

jog on
duc

 

[Dona Ferentes]

Uh oh

Thin end of the wedge perhaps? Tin foil hats all round?

and, a report the Chinese partners in Porgera aren't too pleased
https://www.abc.net.au/news/2020-04...minster-over-gold-mine/12196660?section=world

ABC has obtained a copy of a letter sent this week to the Prime Minister from the chairman of the Zijin Mining Group, Jinghe Chen. In it, Mr Jinghe describes the decision not to grant the lease extension as "shocking" and that he is "saddened" by the impact it will have on employees and locals. The letter outlines that Zijin is "one of the largest metal mining companies in China, with operations in 12 countries", where he says the company makes significant economic and social contributions.

Mr Jinghe writes that Zijin had "great confidence in PNG's mining sector" when it invested in Barrick Niugini Limited in 2015. "Zijin has invested hundreds of millions of dollars in Porgera mine and the investment is one of China's largest in PNG," the letter reads.

 

[wayneL]

1. That you mentioned 'equity markets', I am taking that to mean debt burdens held by listed companies. You seem to be implying that the cost of capital (debt) is somehow going to impede profitability? With the cost of debt at historical lows, how do you come to that conclusion? To support that conclusion, really you are stating that demand will remain at or close to current levels. This could be due to the massive spike in unemployment. So potentially, companies profitability could be impacted.

Zero consumer spending however is not inflationary, it is deflationary. Companies declaring bankruptcy is deflationary. Gold does not do well in a deflationary environment.

Last week's COT:

View attachment 103158
View attachment 103159

Still no Commercial support for either. Gold went pretty much nowhere this week. This rather suggests that this week's COT will show a similar picture to last week's.

jog on
duc

I'm more on board with the deflation view, or maybe deflation then high inflation some time later.... maybe.

I took on some physical last year and was considering more this year, but I'm going to hold off. My view is that it will get hammered at some point this year and I reserve the right to change my opinion at any time.

(This view excludes trades in paper derivatives)

 

[noirua]

 

[ducati916]

This week's COT



Commercials still leaning against gold.

jog on
duc

 

[ducati916]

1. I'm more on board with the deflation view, or maybe deflation then high inflation some time later.... maybe.

I took on some physical last year and was considering more this year, but I'm going to hold off. My view is that it will get hammered at some point this year and I reserve the right to change my opinion at any time.

(This view excludes trades in paper derivatives)

1. There is (a) 'inflation', which runs at 'X' and simply (slowly) erodes our buying power. Then we have (b) 1970's style (US) inflation: this the Fed will target (after Volcker) and we have (c) hyper-inflation (Schiff et al.).

There is type (a) inflation as a constant: simply look at CPI etc. This will not spook financial markets and it will only very slowly increase the price of gold over time, if, interest rates remain below inflation rate (real return). Type (b) inflation (again if rates below real return) will cause large spikes in gold and silver prices. Type (c) will obviously generate significant returns.

Currently we have a low type (a) inflation or even deflation. While I would never say never, if gold was going to $3000oz+ as Schiff et al. advocate, there has been more than enough monetary expansion, uncertainty, etc (surely) to at least exceed the previous high?

Silver doing nothing. Not even back above the March high. Silver has participated in all the big gold moves. That it is languishing, is a concern if you are bullish on gold.

So essentially we are on the same page. I hold physical gold (wouldn't touch the miners) but am not buying any more. Particularly as there seems to be a premium attached to the physical atm: the herd running in way too late, pushing prices higher, very similar to the investors in toilet rolls.

jog on
duc

 

[qldfrog]

I own physical bought along the years at good price vs current levels.
Is it just me or is this type of gold never going back to the market until deaths or financial ruin knock on the door?I do not expect to ever see people rushing to offload their physical bullions and this may place a floor on the POG.
obviously geared x 20 paper Gold will counteract this greatly.

 

[Bill M]

Is it just me or is this type of gold never going back to the market until deaths or financial ruin knock on the door?I do not expect to ever see people rushing to offload their physical bullions and this may place a floor on the POG.

There is hundreds of people buying and selling gold and silver on another online forum similar to this one everyday. Nearly everything that gets put up for sale gets sold for above spot price. Then there is non stop selling on other online platforms like ebay, gumtree and market place on facebook. So it does get back into the market sometimes. On the hand there are hoarders of gold and and silver. They just buy and rarely sell. My Mother was one these people and then when she passed it was my job to sell her precious metals. Since that time I have got into buying and selling gold and silver as a hobby. There is not many hobbies out there where you can actually make a profit out of doing what you like doing.

Silver doing nothing. Not even back above the March high.

This is true but something very fundamental has happened. The bullion shops where some of us buy our silver have sold out all of their bars and coins. Premiums have gone up from $4 to $5 an oz to $9 and $10 an oz. There is a huge backlog of orders that they can not make delivery of for 2 Months or more. As soon as anything comes into the bullion shops it is sold immediately. In December 19 I bought a 10 oz Silver Bullion Coin for $286, yesterday I sold it $399. The problem is there is not much physical metal available in the bullion shops and this has caused the premiums to balloon upwards. The less there is of something the more people seem to want it. So in fact, selling any bullion that I have now is more profitable than anytime in the last 3 years.

 

[ducati916]

1. This is true but something very fundamental has happened.

2. The bullion shops where some of us buy our silver have sold out all of their bars and coins. Premiums have gone up from $4 to $5 an oz to $9 and $10 an oz. There is a huge backlog of orders that they can not make delivery of for 2 Months or more. As soon as anything comes into the bullion shops it is sold immediately. In December 19 I bought a 10 oz Silver Bullion Coin for $286, yesterday I sold it $399. The problem is there is not much physical metal available in the bullion shops and this has caused the premiums to balloon upwards. The less there is of something the more people seem to want it. So in fact, selling any bullion that I have now is more profitable than anytime in the last 3 years.

1. I am assuming your 'fundamental' is contained in [2]. If not, please elaborate.

2. I simply consider that as the 'Toilet Roll' effect.

jog on
duc

 

[Bill M]

I simply consider that as the 'Toilet Roll' effect.

It may or may not be. I don't care as all I do is buy and sell it at a profit and it works for me. I have been doing this for quite some time.

 

[rederob]

Looking at gold prices from the time long-term resistance was broken, we are up some 26 percent, but the gold bug's index (HUI) is twice that.
From an investment (rather than trading) perspective, and for comparison purposes, in the chart below I am also reviewing Evolution Mining (EVN) and Newcrest (NCM) as these equities represent major Aussie gold producers.
EVN has undeperformed spot gold by half, but at least remains well ahead of its starting point.
Since mid-February, when COVID-19 effects began to bite into global markets, Newcrest has massively underperformed.

My view is that both EVN and NCM currently represent excellent value propositions.
My thinking is based on the view that once the COVID-19 effects had bottomed-out and many market sectors began to improve, there has been a short-term transfer of money from traders into these better performing sectors. By way of example, Sydney Airport Holdings is up almost 20% despite the fact it has been experiencing less traffic, while QAN is up around 70% with fewer flights!
As gold, priced in AUD terms, has increased by over 30% over the past year, I expect our major producers to report strong profits going forward and return to favour.

 

[rederob]

Another update on where we are and how trading activity has gold placed for more upside near term:

I don't usually include Relative Strength Indicators in my charts but the current set-up pattern is similar to several earlier breakouts. More interestingly, POG is only $35 of its recent record high, yet is a long way off its former RSI highs. If the pattern plays out in coming weeks then gold's next movement will be well in excess of $100.

 

[qldfrog]

Good increase overnight in the US