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Gold: A Great Buying Opportunity Approaches
Gold has officially entered a bear market, declining more than 20% from the September 2011 peak of US$1,924/oz. I warned in December last year and in March this year that gold was likely to fall further, even though I was optimistic on the long-term outlook. The reasoning was that gold had gone up every year for 12 straight years, a feat achieved by few assets, and that a sharper correction seemed inevitable at some point. After all, most bull markets have several corrections of +30% and gold had only experienced one steep fall of 29% in 2008. Also, the March-July period is traditionally weakest for gold prices as seasonal demand slows.
Now that gold is falling, what should you do? Well, the technical picture suggests that gold will move to US$1,300-1,400/oz. At these levels, gold would have fallen 27-32% from its peak. Remember that during the 1970s bull market, gold fell 47%, before rising 8x to peak in 1980. So no-one can rule out gold declining a lot more. But there are still good reasons to believe that the gold bull market is far from over. If you think that's right, accumulating gold below US$1,400/oz makes sense.
But we're getting ahead of ourselves. Let's go through Friday's events and what to expect from here.
What triggered gold's steep fall on Friday?
Gold was smashed on Friday, down 4.7%. It wasn't alone as silver finished down 5.3% and other commodities were also sharply lower.
Gold's fall was largely technical. It breached May 2011 lows of US$1,536/oz. This triggered stop losses. Then the psychological US$1,500/oz was breached and further selling kicked in.
Silver hasn't yet broken through its key technical support level of US$26/oz. But it should do soon enough.
Beyond technicals, are there other reasons for the sharp fall in gold?
Some have pointed to the European Central bank forcing Cyprus to sell its gold. This is nonsense though given Cyprus' gold holdings were tiny.
The fact is that gold's price action has been a concern for the past six months. Despite QE4 and Japan's monstrous stimulus package, gold has shown few signs of moving higher. Prior to this, stimulus had always stimulated the gold price too.
So what gives? Well, I think supply and demand for gold may offer a more plausible explanation for the recent price weakness. In 2012, gold demand fell 4%, the first decline since 2009. This was driven by a 12% decline in demand from India, the world's largest consumer of gold. A rising rupee, making gold more expensive, as well as higher import tariffs, took a toll on Indian demand.
The decrease in gold demand was all the more remarkable given that central bank gold buying reached 48-year highs.
With India imposing higher tariffs on gold this year, there are good reasons to believe that Indian demand will continue to remain soft. Also, retail demand for gold exchange-traded funds has clearly been in sharp decline of late. Lastly, seasonal demand for gold is weakest in the second quarter of the year. It only ramps up in the second half in the lead-up to India's festival of lights, Diwali.
The decline in gold demand has come while gold supply remains muted. While gold demand is likely to pick up in the second half of the year, supply should stay relatively flat. This is because it takes at least five years to get a gold mine up-and-running, and the 2008 financial crisis delayed a lot of investment into new mines.
Long-term, the supply picture looks poor as gold companies are cutting back investment spend, after it got out of control in the lead-up to 2008. More than a quarter of CEOs at the world's top 25 gold companies have been replaced over the past 18 months as boards demand better returns on capital.
Therefore, though the near-term outlook is challenging, the picture beyond 2013 appears brighter.
How much further could gold fall?
The truth is that no-one knows. You can monitor supply and demand, the technical and so on, but putting a bottom on the price is impossible.
The 1970s can offer insights, though history never repeats. The gold price from 1974-1976 corrected 47% before it rose 8x to peak at US$887/oz in 1980. Extraordinarily, the price increased 4x in the 13 months before the peak.
All bull markets have sharp corrections. You should expect them and that way there's not much to panic about when they do happen.
Does gold's fall signal anything about the broader economic environment?
The different markets are sending mixed signals. Strengthening in bonds and the commodities sell-off would seem to indicate investor caution, or so-called risk off. But stocks are still at or near record highs in most markets, which indicates risk-on.
What's clear is that economic data have deteriorated of late. In the U.S., poor retail sales numbers were the latest in a line of data which were below expectations. In Asia, export figures from countries dependent on global trade such as South Korea, Taiwan and Singapore have been abysmal.
My take on this is that stocks are the odd man out due to printed money flowing through to them. What I'm seeing is that deflation appears to be defeating central banks' best efforts to produce inflation to reduce their debt loads. The prices of gold and copper (Dr Copper is used as a sign of economic strength or weakness) indicate that inflation isn't on the horizon.
Whether these commodity price decline indicate a larger deflationary event is on the way is an open question. Let's wait and see.
Is the gold bull market over?
Ah, the key question. I think there is a strong likelihood that the bull market isn't over. History is my guide on this. Commodity bull markets have averaged 18 years over the past century, with 14 years as a minimum. We're into year 13 of this gold bull market. If the bull market is over, it would be the shortest one in recent history.
More importantly, all bull markets have a so-called parabolic stage, where prices go up in a straight line. You see that in the gold chart of the 1970s. Same for the Nasdaq in the 1990s and so on. We just haven't seen such a spike in this gold bull market.
Moreover, bull markets require significant public participation. I certainly don't see the average person in most countries having participated in the gold bull market. It certainly isn't reflected in the fund allocations of fund managers either. In the U.S. for instance, gold represents less than 1% of institutional fund portfolios.
Finally, history suggests that global currency devaluations favour precious metals. And as mentioned in my newsletter last week, the current expansion of central bank balance sheets is unprecedented.
What about gold stocks, which have been obliterated of late?
Gold stocks are at more than 10-year lows versus the gold price, as measured by the HUI index in the U.S.. They have been significantly underperforming gold for some time.
One key reason is that gold companies have seen mine cost blowouts, investment overspend and silly merger and acquisitions prior to this year. Shareholders did not get the benefits of higher gold prices through better company earnings and dividends.
As mentioned above, the cowboy culture of many gold companies is now changing. Boards are holding managements to account. CEOs are being more disciplined about investment spend, focusing on returns rather than getting bigger just for the sake of it.
In the end, gold stocks are leveraged plays on gold prices. But you need to be able to pick the right companies.
This post was originally published at Asia Confidential: http://asiaconf.com/
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Sunday, April 14, 2013
Dr. Paul Craig Roberts
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/4/14_D...
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12 April 2013
Gold Daily and Silver Weekly Charts - Shock and Awe in the Currency Wars - Silver Shenanigans
http://jessescrossroadscafe.blogspot.com/2013/04/gold-daily-and-silver-w...
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Record stampede by the dumbest money in gold: GLD holdings plunge
http://maxkeiser.com/2013/04/14/record-stampede-by-the-dumbest-money-in-...
http://www.zealllc.com/2013/gldhldpl.htm
GLD Holdings Plunge
Adam Hamilton April 12, 2013 2684 Words
The author of the article doesnt even mention the gold and silvere price manipulation by central banks. Explaining the recent( especially since 1971) moves in the PMs without considering that is lacking insight and doesnt make much sense to me.
On the KWN Weekly Metals wrap Bill Haynes, of cmi-gold-silver, said that he sold as much metal to cutomers this week, as he does in a month. Big buyers and lots of them.
I've also been reading that the premium over spot is goin' up!
Sounds to me like, if the spot price is going down then the physical metal(premium over spot) is in demand, and not a paper promise of metal.
I have taken notice of having not one, but two states to move to if I choose to, where gold and silver are not subject to capital gains taxes(if i'm not mistaken)... Utah, and now Arizona as well. And.. Texas wants to bring it's gold home!
Hmmmmm
JMHO, I believe that part of the reason that gold is being hammered so viciously is geo-political....who's been buying all the gold lately...answer, primarily China and Russia....who needs tobe taught a tough lesson....fill in the blanks....yes, the small investor needs to be scolded, but the so-called big players need it even more for the dollar to survive....personally, I'm on the sideline in this market right now...gold and silver that is....look, Soros and Buffet both knew something a few weeks ago when they reduced their holdings substantially....they got the word from a little birdie....inside info is tough to trade against...jmho
In my experience, it's never a good idea to make love to something that can't or won't love ya back....that goes for women, gold, money, cars, houses, realestate,etc....obsessions of any sort are not healthy. Just like a woman, ya gotta keep them all in their place or there will be hell to pay.I speak from experience and plead guilty to having done all of the above. Obsession leads to neurosis eventually. OK, keep your gold as an insurrance policy, but not as a lover. That's what the George Soros'of the world do . Materialism is a dead end street. There are only simple pleasures. All else are acts of desperation...acts of fear. Just give me a hot woman and a cold bear or a wine cooler...then just turn on the A/C and close the door behind you. I can handle the rest. Guys, like Alfie said, "Is that all there is, my friend..." and to me that appears to be ringing true. Your kids may come through you, but they are not you. Even Mother Teresa figured it out in the end...and she was't happy about it either. But as Zorba said, "Life is trouble;only death is not!" As for me, I'm going to live out my life with dignity and self-respect. How about youself? Can ya' handle it! 'Cause at some point it's going to come down to "push or shove"....how much are you going to take before you fight back?" To me, that's the only questions left...to be or not to be a coward!
wealth won't make you happy, there is no correlation. but it sure will provide you with comfort and security. so i am all for it.
My opinion, FWIW:
1. 30 day chart: doesn't prove anything either way;
2. 5 year chart: does look like asset has topped out and rolled over.
And to 2. can be added all the stories as to how CB's are buying gold...like retail, they really do have a terrible reputation as reverse indicators.
I must admit that these sorts of articles just piss me off. The bear market isn't a bear market. It is just the blatant manipulation of various markets, including the PMs. It will continue until it doesn't. Could be next Monday or it could be 30 years later that the price finally goes up. But in the meantime, I'm losing money fighting this losing battle.
yes we have no bananas or gold
Sounds like a plan, but will physical gold be available for purchase at $1,300? Who'd be selling?
Don't fool yourself. When prices hit $1,300 there will be more physical available than there was at $1,700. It is a fundamental truth (especially in commodities) that lower prices mean more supply.
Except, of course, in the precious metals, when market manipulation by oligarchic sociopaths desperately defending their corrupt fiat currency artificially lowers the prices.
Clearly, you were not alive (or conscious) back in late 2008.
I have never had a problem buying gold when I want it, have you?
Well, I have never bought any gold (pirates steal all their gold on the high seas, don't you know that?), but I can well remember reading widespread reports of the lack of availability and/or extra high premiums for it during late 2008 ---- and the virtual lack of availability, period, of silver at the same time. Are you denying that such was the case?
I was talking about jewelry of course. No red blooded American would ever save money in a barbaric relic when they can spend it on consumer goods!
Oh, there would be gold for sale ..... at a 20-30% premium.
ONLY THE TOTAL IDIOTS.......
or the desperate. as the depression worsens many people may have to cough out their PMs.
Is there evidence that paper Gold is being sold, and physical gold is being purchased? Seems like the sale of GLD is a given. What's going on in the physical gold market?
Buying, hiding , purchase of large safes and semiauto weapons. Holding, holding and holding...
Gasoline is down 10% in the last 2 weeks in my neck of the woods. All kinds of commodities are down.
Something is happening here. Something that has not been discussed on ZH.
The Europocalypse has returned. You can't tell people you will be stealing all their money over a certain amount and expect banks to stay open for long. You will never hear about it on TV.
The Europocalypse drives down the price of commodities, including gold? I don't see it.
TPTB drive it low and people will dump. Then they buy more for less..
Gold, silver I can see. All commodities, no.
Here's my guess. These things got bid up way too high, and now the speculators are running from what I'll call the "bitcoining" of all these markets. The trap has been sprung. Time to fuck the little guy, weak hands, algos with the wrong logic, and idiot momo traders.
Here comes Bernanke and company with a petard.
I agree that the near term should provide lower prices on gold and silver. But, most people who buy gold and silver aren't doing so for short term gains (with the notable exception of the gold and silver paper market which I do not count as investing but rather trading).
My short term plan might be shorting paper gold, then using those profits to buy physical silver once the downtrend shows signs of reversing.
As far as selling any physical silver (I don't own gold, just silver..for now), I have no intention of selling my physical holdings anytime in the next ten years. That's my retirement stash and I'm still a good two plus decades away from that.
There's gonna be a lot of bullshit in the mainstream financial media in the coming weeks about Gold. And that's all it is: Bullshit.
BreakDown and analysis of Commitment Of Traders For the Following ....
GOLD: https://docs.google.com/file/d/0B16Nxp5pgJBzaE10ejJ6NFZqTTQ/edit?usp=sharing
SILVER: https://docs.google.com/file/d/0B16Nxp5pgJBzWXhlTGF5YXFwUkE/edit?usp=sharing
More at https://CommitmentsOfTradersAnalytics.com
Moreover, bull markets require significant public participation. I certainly don't see the average person in most countries having participated in the gold bull market
More importantly, all bull markets have a so-called parabolic stage, where prices go up in a straight line
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We certainly haven't seen the public participation in the gold market this time around and we're nowhere near as frothy as that thing became-
http://tinyurl.com/buuu5s9
With gold, you don't let technicals or short term price action make decisions for you. Sounds glib, but what you see is what you are supposed to see. Those stops were the target of 6 months of work. If there is no follow through, and I would be surprised if there was considering the state of the banking system and global government finances, then gold will have merely completed another headfake before a new leg of the rally starts. And it will rip hard with no trader stops left to hit underneath it. I really doubt any nation is going to let their national reserves get torqued on by Goldman's muppets, or miss a chance to get size off of them at a discount. All the CBs are light. And as a ratio of US money supply to US gold, gold is 15% cheaper than it was in 1970 at $35. Basicly, I think you are crazy not to be buying gold, and crazy to be buying stocks.
I agree that short term price action or technicals should not be a factor in your long term holdings strategy, but they do provide useful guidance about when to buy.
You are better at it than me. BTFD is all the gold technicals I have success with. I just look at stuff like this:
http://bullmarketthinking.com/comex-gold-inventories-collapse-by-largest-amount-on-record/
Drainage.
That is useful information and ultimately, that is the kind of thing that sets the price right. However, you need to keep in mind that the price reflects the "paper" not the metal...and there is no shortage of paper.
If you look at gold as a component in the basket of commodities then it makes sense that the decline portends a global economic slowdown which is highly deflationary. I know I will probably be skewered on this board for saying it, but it is probable that we will see much lower prices in all asset classes including gold.
According to my stuff, looks like Gold will make a short term daily rebound, but the longer term trend is down for now.
governments cannot allow deflation to take a firm grip, it endangers their existence. the budget deficits must and will be financed. so they will force the central banks to inflate the debt away at all costs. probably they will devise more direct approaches.
e-recep I disagree. Governments have to allow for some deflation in order to finance their deficits. It's a tightrope they are walking to keep real rates negative and they know it. Without low or no interest borrowing, the USG could not fund itself. A 300 basis point move will make it impossible. IMO, the recent sell off in gold smells like another wiff of deflation is coming.
If you plan on holding it for a long time, any time is a good time to buy gold. Buying some physical now is $80 / oz better than on Thursday...
If you CAN buy any physical that is...
during long-cycle winters the right thing to do for average folks like us is to go long gold. yeah, winters take years, 15, maybe 20, maybe more, but what can you do. that's how they are.
we are not priviliged club members (read : insiders) hence we can't move in or out during the ripples, it's too scary. and we have been having gigantic ripples since september 2011.