Gold Price - Where is it heading?

[Uncle Festivus]

So the battle continues.....

It's pretty obvious the plunge protection team has fired both barrells of the financial shotgun this week to keep the fiat currency jalopy on the road, with both Helicopter Ben & Cowboy Hank riding out front of the central bank cartel.
There's only one problem - it didn't work. Dumping several tonnes of gold onto the market while simultaneously flooding the world with even more US dollars, or whatever currency looks vulnerable, and the gold price actually went up.
The lines have been drawn at $688 gold and 80 US dollar index, and neither shall be breached, if the US fed has any say in the matter. Getting close to the big disconnect. Are the central banks gold vault's empty already?

 

[explod]

I know the US Dollar Index has been trending down this year, but if one looks at the trend down it has been a real struggle compared to it's earlier trends down in the last 7 years. I think this pattern is and Ending Diagonal in EW parlance. These patterns subdivide into 3 wave structures.

The ED does not appear complete but is approaching termination. If one draws 2 trendlines forming a trendchannel it can be seen that these 2 trendlines converge. On occasion the last wave of the ED resolves itself(in this case down) with a "throwover" or break of the lower trendline. This is usually accompanied by high volume and is a sign that that the pattern is coming to an end. At this stage cannot tell when the ED will end but is should be coming up. So I am looking for 2 possible scenarios here:-

A sharp upward reversal following termination of the ED OR a sharp move down (a throwever) followed by a sharp reversal.

The US Dollar Index is not ready to collapse ATM in my opinion

On the contrary the USD/INDEX has been in a strong downward channed for all of 07. It is at the bottom of the channel now and could be expected to go to the top of this channel to say 81.05 before it continues downward. On the other hand in the last few weeks it has almost breached the 80 mark, often it takes three attempts to break support. This too is a very likely scenario. The fact that gold rallied so strongly late Friday in spite of Central Bank sell offs, indicates a fear in the general investment community that the dollar may break through this support and begin to collapse.

However the trading begins tomorrow and we will see

 

[wavepicker]

The fact that gold rallied so strongly late Friday in spite of Central Bank sell offs, indicates a fear in the general investment community that the dollar may break through this support and begin to collapse.

However the trading begins tomorrow and we will see

Explod,

The USD has trended down for all of 07, no one is denying this. But it has been a creeping/struggling trend down. In so far at the USD crashing, I think it is fair to say, it's already crashed from it's levels of the year 1999. There is a chance the foreign currencies may hang in there into next year, but I think the USD will make surprising bounce next year. As for Gold, let's see what happens, but it's been in a range for 1.5 years now and until it shows signs of breaking out of it, I am reluctant to do anything long or short at present.

Cheers

 

[explod]

Explod,

The USD has trended down for all of 07, no one is denying this. But it has been a creeping/struggling trend down. In so far at the USD crashing, I think it is fair to say, it's already crashed from it's levels of the year 1999. There is a chance the foreign currencies may hang in there into next year, but I think the USD will make surprising bounce next year. As for Gold, let's see what happens, but it's been in a range for 1.5 years now and until it shows signs of breaking out of it, I am reluctant to do anything long or short at present.

Cheers

Not suggesting any action. It is all forming a tight range. Particularly gold which has to break out of the pennant from mid 06 soon. My point I suppose from a tech perpective is that we cannot be pick the direction. The fundamentals suggest that the debt crises of the US may only be just getting underway. If that is the case then the dollar will be at risk if the Fed have to reduce rates for a rescue

 

[Uncle Festivus]

There is a chance the foreign currencies may hang in there into next year, but I think the USD will make surprising bounce next year.
Cheers

wavepicker,
I assume this is from a TA perspective, but I can't see any fundamental reason for a bounce in the $US on the horizon. If you factor in that the US housing bust will continue into a recession (watch the home builders reports to come), or worse?, why would anybody want a US dollar.
A lot of countries are primed to transfer to the Euro at a moments notice, as their $US investments have tanked over the years.

The crux of the whole problem is excess liquidity. Until such a time as the excess is purged (recession?) there looks to be downward pressure on the US dollar. That is, if market forces were allowed a free hand, but as witnessed this week, the US Fed is putting up a fight to the end maybe. How much more money can they prime before they have to resort to the last resort - lowering interest rates?

Faberism - 'the US Dollar is doomed'.

 

[bean]

Yes at the moment we have this relationship between the US$ and Gold
One up one down?
When the markets fall everyone into bonds which help to strengthen the US$ . Also at the moment market weakness the Gold indicies are sort of following the market early on friday POG was well up yet the gold indicies one was just positive are the other negative.
So any downturn in the market it still appears as though the gold indicies will follow the market which in turn will pull the POG down.
At some stage during the downturn POG will actually start to act like a currency/a safe haven
Then at that stage will the US$ finally collapse?
People have talk about the Euro, but look at Euro central banks dumping money as well. Gold and also the Euro will be the alternative to the US$.
And the POG will rise,
Deflation...posiblity but for POG it will not be regarded as a commodity at that stage but an alternate currency. IMO.

 

[noirua]

Why do you say that gold looks set to move sideways. You also made a similar statement a couple of days ago on another thread. You have done so without qualification on both occasions.

In the last five years the US dollar has moved opposite to gold and there is every indication that this will continue. If the US dollar is going to go down as you suggest then surely gold will go up

hi, On this occasion we have quite a lot of worries in markets and the weakness of the U.S. currency ( the Yen is weaker, and Hong Kong$ as weak, due to its link to the US$ ) may well be coming to an end. Gold should therefore remain around current levels despite an improving US$. Gold has infact fallen in value over the last year or so whilst the US$ continued down and this may well be corrected; That is we may see a stronger US$ with gold remaining steady.

The last five years has seen a reversal of a long Bear market in Gold and most of that whilst the US$ sank. Gold left the gold standard guarantee as long ago as 1971 and this roughly coincided with the oil crisis. (oil jumped from $2 per barrel to $10 per barrel). I make this point only to emphasize that what goes on in the world outside America is as equally important to gold as the strength of the US$. The strength of the currency where we reside or where a company resides, has as much importance as well.

 

[explod]

hi, On this occasion we have quite a lot of worries in markets and the weakness of the U.S. currency ( the Yen is weaker, and Hong Kong$ as weak, due to its link to the US$ ) may well be coming to an end. Gold should therefore remain around current levels despite an improving US$. Gold has infact fallen in value over the last year or so whilst the US$ continued down and this may well be corrected; That is we may see a stronger US$ with gold remaining steady.

The last five years has seen a reversal of a long Bear market in Gold and most of that whilst the US$ sank. Gold left the gold standard guarantee as long ago as 1971 and this roughly coincided with the oil crisis. (oil jumped from $2 per barrel to $10 per barrel). I make this point only to emphasize that what goes on in the world outside America is as equally important to gold as the strength of the US$. The strength of the currency where we reside or where a company resides, has as much importance as well.

OK, and it is good to have your reasoning. Yes gold hit a peak mid 2006 however the technicals would suggest that the uptend from 2001 has not been breached. The US dollar has been the world reserve currency and the pool of dollars held offshore so large that any large move away from it will cause massive problems. At the moment it is away from US debt paper. I am not an economist or any expert but the people moving from dollars will push up Euros, Crona etc etc, but gold also. I would be keen to hear from others on this last point.

 

[explod]

Further to the last, it has occurred to me that initially there could be a flight to US dollars due to its role as the world reserve currency, so you are probably right Noirua.

Recently for example it was announced in the US that property had had its first actual value decline in 70 years. Now this is more than three generations. It is outside living experience. People are not initially going to know what to do. With markets and debt looking bad the first instinct will be to go for cash into what has become known for at least thirty odd years as the safest currency, the US dollar. So you could be right. the dollar may gain some strength for awhile. But I think when people realise that the US dollar is backed by huge debt and few assets then gold will come into the fore after that.

 

[Sean K]

Further to the last, it has occurred to me that initially there could be a flight to US dollars due to its role as the world reserve currency, so you are probably right Noirua.

Recently for example it was announced in the US that property had had its first actual value decline in 70 years. Now this is more than three generations. It is outside living experience. People are not initially going to know what to do. With markets and debt looking bad the first instinct will be to go for cash into what has become known for at least thirty odd years as the safest currency, the US dollar. So you could be right. the dollar may gain some strength for awhile. But I think when people realise that the US dollar is backed by huge debt and few assets then gold will come into the fore after that.

So, do you think the long term smart money is going to gold now, or waits till some dust settles, or an upward trend in POG?

POG seems to be in an upward trend now to me. Long term, medium term, and short term.

Of course, breaking 690 ish seems important. Maybe that's an understatement.

 

[wavepicker]

wavepicker,
I assume this is from a TA perspective, but I can't see any fundamental reason for a bounce in the $US on the horizon. If you factor in that the US housing bust will continue into a recession (watch the home builders reports to come), or worse?, why would anybody want a US dollar.
A lot of countries are primed to transfer to the Euro at a moments notice, as their $US investments have tanked over the years.

The crux of the whole problem is excess liquidity. Until such a time as the excess is purged (recession?) there looks to be downward pressure on the US dollar. That is, if market forces were allowed a free hand, but as witnessed this week, the US Fed is putting up a fight to the end maybe. How much more money can they prime before they have to resort to the last resort - lowering interest rates?

Faberism - 'the US Dollar is doomed'.

Hello Uncle,

Fully understand the fundamental situation with regard to the US buckaroo. But quite often markets tend to do what is not logical, especially when it comes to fundamentals in the short to medium term. Over the longer term, the fundamental argument is certainly more compelling. For what short to medium term reason are commodities currently reversing?? Why is the Aussies market having such a savage correction? After all economy is good, very low unemployment, great company profits….. blah, blah, blah?? Simple, the short/medium terms fundamentals lag the market not lead it.

I like most other believes the USD is in a secular bear trend, but markets don’t in most cases don’t like traveling with the speed of an express elevator either up or down. They have countertrends, sometimes very deep ones and sometimes short ones. Just have a look at this market, it has been pummeled into the ground for the last 7 years, what are the chances it’s going to collapse from here given it has already come down 33%?? If anything further downside will be limited in the medium term. Over the longer term a continued decline is more realistic.


Assuming the stock market continues to tank it, what will happen to the dollar?? Well let’s have longer term look at it see what happened in 1987 for example (not that this is entirely a valid comparison but it’s the only instance I could find). After 87, the USD against a basket of currencies fell for a good year and then rallied hard. In some currencies this was a countertrend, in others like AUSUSD it was a full on bear. Why did the USD rally, after all the US was in the early stages of recession? Could it be that the USD will still be the currency of choice INITIALLY if the markets continue to tank it?

Then we have the interest rate cycle. This appears to have bottomed in late 2002; the move of the last 20 years appears to have been a nice abc correction. So interest rates could be double digits again within 5 years.

The pattern in the USD Index appears to be an Ending Diagonal or struggling trend down. The fact that it has struggled down NEAR a previous support level has to catch ones eye. These can resolve 2 possible ways

-Wave 5 of the ED can turn into a brief but sudden move down or a “throwover” of the lower of 2 converging trendlines in this current trend own. This is usually done on high volume and often signals exhaustion and a fast reversal

-Wave 5 could terminate above/close the lower trend line in which case we get an abrupt reversal.

Once again the USD Ending Diagonal appears incomplete, so there is still the need for more downside here, but limited. In terms of time this may take the rest of the year. I have looked at the AUDUSD and I think it will consolidate and hold on before topping next year some time-possibly in the middle to second half of the year.

Cheers

 

[>Apocalypto<]

Excellent post Wavepicker

 

[wavepicker]

Excellent post Wavepicker

Thanks Joseph, I suppose what it all boils down to is that we should look for good trending markets either up or down to trade. Precious metals have been stuck in a range for 1.5 years and until they show signs of doing otherwise then let's focus on other markets that are trending nicely.

Unless you are in for the long haul ofcourse!!

 

[explod]

Thanks Joseph, I suppose what it all boils down to is that we should look for good trending markets either up or down to trade. Precious metals have been stuck in a range for 1.5 years and until they show signs of doing otherwise then let's focus on other markets that are trending nicely.

Unless you are in for the long haul ofcourse!!

That's it wavepicker, the long term outlook is the basis of my investing. Thanks for the insights above.

The timelines do have a big bearing on the different outlooks which makes it difficult for the newcomers.

The other hair split is that some see gold/silver as part of commodities and others see them as precious metals and still others as a store of wealth. I see it as the latter two

cheers explod

 

[cuttlefish]

So does anyone know where all the gold in the world is anyway? It doesn't sound like a big proportion of it ends up as jewellery (or am I wrong there?).

Various central banks have been offloading gold for years so there's not as much held in vaults about the place. So where is it, who's holding the physical gold sold by miners that hasn't been turned into jewellery?

Another question - how much volume is traded daily, monthly, annually?

What percentage of gold buying is jewellery demand vs investor/speculator demand?
And how quickly could supply respond to a price increase?

Seems that gold explorers with a large, well understood but low grade/uneconomical gold deposit are a dime a dozen - so wouldn't a sharp increase in price fairly rapidly bring new supply on stream?

Thanks to anyone that can offer any thoughts, information or opinions on the above!

 

[Nicks]

So does anyone know where all the gold in the world is anyway? It doesn't sound like a big proportion of it ends up as jewellery (or am I wrong there?).

Various central banks have been offloading gold for years so there's not as much held in vaults about the place. So where is it, who's holding the physical gold sold by miners that hasn't been turned into jewellery?

Another question - how much volume is traded daily, monthly, annually?

What percentage of gold buying is jewellery demand vs investor/speculator demand?
And how quickly could supply respond to a price increase?

Seems that gold explorers with a large, well understood but low grade/uneconomical gold deposit are a dime a dozen - so wouldn't a sharp increase in price fairly rapidly bring new supply on stream?

Thanks to anyone that can offer any thoughts, information or opinions on the above!

Cuttlefish this is excellent thinking and poses the question on several fundamental fronts.

One I would like to talk about though, which you alluded to is viability.

I bought Avoca resources (AVO) when they did their mine feasability study at US$450 an ounce. Now as the Gold Price is rising significantly since then their mines, which also have increased in quality and magnitude, are now suddenly not only viable but high earners.

Thus you have similar companies like A1 minerals (AAM), with mines that have similar quality g/t of gold that already seem they will pass the feasability test with a strong project NPV. I have invested in this company also as it looks great from a NPV value at present gold rates (and they have Uranium prospects in their holdings also), and there is also an upside if Gold climbs higher. Of course if gold goes lower than feasability is less but I cannot see any downside in gold price, and even so then the worst case is the tenements would just hold in value for a while.

A sharp increase would see production ramp up very quickly at both and a strong SP reflection.

Interestingly as they develop the mines, as seen in Avocas case, they tend to strike more and more deposits.

 

[ducati916]

So does anyone know where all the gold in the world is anyway? It doesn't sound like a big proportion of it ends up as jewellery (or am I wrong there?).

Various central banks have been offloading gold for years so there's not as much held in vaults about the place. So where is it, who's holding the physical gold sold by miners that hasn't been turned into jewellery?

Another question - how much volume is traded daily, monthly, annually?

What percentage of gold buying is jewellery demand vs investor/speculator demand?
And how quickly could supply respond to a price increase?

Seems that gold explorers with a large, well understood but low grade/uneconomical gold deposit are a dime a dozen - so wouldn't a sharp increase in price fairly rapidly bring new supply on stream?

Thanks to anyone that can offer any thoughts, information or opinions on the above!

I have already posted the latest data that answers the majority of your questions on page 80 of this thread.

jog on
d998

 

[Uncle Festivus]

Wavepicker

Just have a look at this market, it has been pummeled into the ground for the last 7 years, what are the chances it’s going to collapse from here given it has already come down 33%?? If anything further downside will be limited in the medium term. Over the longer term a continued decline is more realistic.

A simple question for me is, why not? Why can't it continue down? The basis for your analysis was by way of technical analysis?, yet the word 'chances' is mentioned on the fact that a substantial decline has already taken place. I'm not having a go at you, just wondering on what technical analysis you are basing your assumption that there is little chance of further falls in the $US index. Benny has started throwing money from helicopters, so it's not as if there is still a shortage of the IOU's.

I think the Fed has the $US index right at the goldilocks point where it is starting to have a reasonable impact on the balance of trade etc, but not low enough to cause price inflation for US consumers, so they will fight pretty hard to keep it here, no more, no less.

Back in '87 the $US was the only safe store I assume, but there are a few alternatives these day's so probably not the safe bet it used to be?

 

[cuttlefish]

I have already posted the latest data that answers the majority of your questions on page 80 of this thread.

jog on
d998

thanks duc

 

[wavepicker]

A simple question for me is, why not? Why can't it continue down? The basis for your analysis was by way of technical analysis?, yet the word 'chances' is mentioned on the fact that a substantial decline has already taken place. I'm not having a go at you, just wondering on what technical analysis you are basing your assumption that there is little chance of further falls in the $US index.

If you want trade effectively then you have to learn to think in probabilities. Why?? Because the market only gives us probabilities, possibilities and no certainties. By looking at trading opportunities in terms of probabilities we are thus looking at circumstances to trade from, be it fundemental or technical. To answer your question, YES the market can continue down, I never said that it could not, and YES the market can collapse as anything is possible. However what is the probability this will happen NOW given:-

a/ the market has already lost 33%
b/markets rarely move up and down vertically, they ratchet down and we have quite a few countertrends against the main trend
c/ The trend of the last 12 months has been a creeping/struggling trend

Now back to my earlier post, read it carefully. I stated that I beleive the USD is in a secular bear market. However IMO is not ready to "collapse" just yet. I still think it's trending down and has further to trend down, but after this last leg is completed, probabilities favour it's biggest counterend rally since the bear began.

No offence UNCLE, but all you have done is stated the OBVIOUS fundemental argument as to why the the USD will collapse, just like others on this forum have stated the obvious as to why the commodities boom will go for a long time because of other fundementals like China. Dollar bears have been stating the obvious now for the best part of 3 years. When they became most vocal about it(ie the financial print media) saying they were convinced the dollar was gonna collape in Dec of 2004, well what did the dollar do?? It rallied 21% that year(2005).
Now the same crowd such as yourself are still calling for a collapse, probably more so then back then.

It might pay to start looking at the market a little bit more objectively, both froma technical and fundemental perspective