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Gold Bucked Down But Remain Long-Term Bullish
(ResourceInvestor.com): While it may feel to some traders like gold is down big, the metal actually only registered a decline of $0.83 or 0.1% on the cash market for the calendar week ending December 14. Friday’s last trade of $794.34 rests very close to the popular 50-day moving average and technically minded traders will be watching that line in the sand closely near term. While gold may face near term headwinds, the long term outlook remains decidedly bullish in this report’s opinion.
Gold “feels” like it has sold off more than it has partly because of continued persistent weakness in mining shares (as mentioned below in the Gold Indexes section graphs), because of the large bounce in the U.S. dollar against other global currencies (as shown in the U.S. Dollar section graphs below), and because of a number of large U.S. brokerages calls to take profits and or sell gold and gold stocks over the past two months. (One of the most recent comes from Goldman Sachs after they were probably already net short.)
With the 200-day moving average well below, around $710 currently, the charts must have technically minded gold bears salivating especially with the recent strength in the U.S. dollar to support their gold-should-get-cheaper cause. Gold could sell down another 10% and not even challenge its most popular moving average. The $64 trillion-dollar-credit-market--nervousness question is, then, how low will gold go?
As with anything dealing with the future, the correct answer is we just don’t know, but a very strong case can be made that gold metal will find undefeatable support somewhere between right here ($790s) and $700.
On the right, or Dexter hand, we just witnessed a big jump in the U.S. producer price inflation figures, reportedly the highest since the 1970s (reflecting what most people expected $90 oil would mean) and isn’t higher inflation bullish for gold? We just saw the CRB index mark a new all time high as all commodities adjusted to increased costs and demand. The ongoing credit crises has the FED and the other large global central bankers pumping a flood of yet more liquidity (over $110 billion in one coordinated move) into the global monetary system.
In a few weeks China opens the door to in-country spot bullion trading, opening up a new source of demand. Rumours of very large and concentrated recent gold buying out of the Middle East, Asia, Japan and Russia persist (and are likely true) and we continue to see sizable increases in the amount of gold being held by the world’s gold exchange traded funds (see the Gold ETFs section below). This gold-bullish list could go on for paragraphs, but suffice it to say that demand for gold is on the rise for a gaggle of reasons and the amount of the yellow metal available to serve that demand is relatively constant.
On the left, or sinister hand, in addition to the recent calls by brokerages for their clients to sell gold and gold stocks, we have to note that the largest of the largest gold futures traders on the COMEX boosted their collective gold net short positions even though the metal was a little down in the latest commitments of traders report from the CFTC (detailed in the COT Changes section below). The long overdue bounce in the U.S. dollar (relative to other fiat paper currencies) is underway as the most one-sided trade of 2007 gets unwound.
Mining stocks continue to under-whelm and under-perform and thanks to general Big Market weakness look even worse than they might otherwise, but clearly a contraction of liquidity in the mining sector continued as of the past week. In short, for whatever reasons liquidity has been leaving the metals and mining sectors faster than entering.
What’s the bottom line for this report? Well, the argument between the indicators continues and we have to keep short term caution flags flying. Long term fundamentals for gold are positive, but short term gold has to navigate into some more headwinds.
The short term prospects are for further contraction in the mining sector, but for how much longer? With more and more gold being taken off the market into global gold ETFs, the prospect of more investment into gold from sovereign wealth funds seeking currency safe harbour, more and more investment in the metal coming from China, Japan, Russia and the Middle East (not to mention the U.S.), growing uneasiness with all fiat paper currencies and less gold being dumped onto the market by the world’s central bankers, gold should, repeat should, see a rising floor for the foreseeable future. We’ll see.
(ResourceInvestor.com): While it may feel to some traders like gold is down big, the metal actually only registered a decline of $0.83 or 0.1% on the cash market for the calendar week ending December 14. Friday’s last trade of $794.34 rests very close to the popular 50-day moving average and technically minded traders will be watching that line in the sand closely near term. While gold may face near term headwinds, the long term outlook remains decidedly bullish in this report’s opinion.
Gold “feels” like it has sold off more than it has partly because of continued persistent weakness in mining shares (as mentioned below in the Gold Indexes section graphs), because of the large bounce in the U.S. dollar against other global currencies (as shown in the U.S. Dollar section graphs below), and because of a number of large U.S. brokerages calls to take profits and or sell gold and gold stocks over the past two months. (One of the most recent comes from Goldman Sachs after they were probably already net short.)
With the 200-day moving average well below, around $710 currently, the charts must have technically minded gold bears salivating especially with the recent strength in the U.S. dollar to support their gold-should-get-cheaper cause. Gold could sell down another 10% and not even challenge its most popular moving average. The $64 trillion-dollar-credit-market--nervousness question is, then, how low will gold go?
As with anything dealing with the future, the correct answer is we just don’t know, but a very strong case can be made that gold metal will find undefeatable support somewhere between right here ($790s) and $700.
On the right, or Dexter hand, we just witnessed a big jump in the U.S. producer price inflation figures, reportedly the highest since the 1970s (reflecting what most people expected $90 oil would mean) and isn’t higher inflation bullish for gold? We just saw the CRB index mark a new all time high as all commodities adjusted to increased costs and demand. The ongoing credit crises has the FED and the other large global central bankers pumping a flood of yet more liquidity (over $110 billion in one coordinated move) into the global monetary system.
In a few weeks China opens the door to in-country spot bullion trading, opening up a new source of demand. Rumours of very large and concentrated recent gold buying out of the Middle East, Asia, Japan and Russia persist (and are likely true) and we continue to see sizable increases in the amount of gold being held by the world’s gold exchange traded funds (see the Gold ETFs section below). This gold-bullish list could go on for paragraphs, but suffice it to say that demand for gold is on the rise for a gaggle of reasons and the amount of the yellow metal available to serve that demand is relatively constant.
On the left, or sinister hand, in addition to the recent calls by brokerages for their clients to sell gold and gold stocks, we have to note that the largest of the largest gold futures traders on the COMEX boosted their collective gold net short positions even though the metal was a little down in the latest commitments of traders report from the CFTC (detailed in the COT Changes section below). The long overdue bounce in the U.S. dollar (relative to other fiat paper currencies) is underway as the most one-sided trade of 2007 gets unwound.
Mining stocks continue to under-whelm and under-perform and thanks to general Big Market weakness look even worse than they might otherwise, but clearly a contraction of liquidity in the mining sector continued as of the past week. In short, for whatever reasons liquidity has been leaving the metals and mining sectors faster than entering.
What’s the bottom line for this report? Well, the argument between the indicators continues and we have to keep short term caution flags flying. Long term fundamentals for gold are positive, but short term gold has to navigate into some more headwinds.
The short term prospects are for further contraction in the mining sector, but for how much longer? With more and more gold being taken off the market into global gold ETFs, the prospect of more investment into gold from sovereign wealth funds seeking currency safe harbour, more and more investment in the metal coming from China, Japan, Russia and the Middle East (not to mention the U.S.), growing uneasiness with all fiat paper currencies and less gold being dumped onto the market by the world’s central bankers, gold should, repeat should, see a rising floor for the foreseeable future. We’ll see.