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Dollar's 30 Year Slide May Be Gold's New Life: 2014 Outlook

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Today’s AM fix was USD 1,241.75, EUR 918.59 and GBP 766.75 per ounce.
Yesterday’s AM fix was USD 1,248.50, EUR 929.64 and GBP 775.76 per ounce.

Gold fell $1.50 or 0.12% yesterday, closing at $1,243.20/oz. Silver climbed $0.14 or 0.71% closing at $19.99/oz. Platinum rose $4.60 or 033% to $1,389.50/oz, while palladium climbed $3.78 or 0.53% to $714.75/oz.

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Many traders and investors are still scratching their heads at the peculiar gold trading Wednesday which pushed gold below the important technical level of $1,250/oz. Support at $1,250/oz has been breached and gold is vulnerable of a fall to test support at $1,200/oz and the June 28th low of $1,180/oz (see charts below).


US Dollar Index - 1983 to Today (Bloomberg Industries)
 
And yet gold still seems to be stuck in a downtrend. This week's sell off may have been due to trading shenanigans on the COMEX and many, including the UK Financial Regulator are asking questions as to whether gold price rigging is taking place.

Gold’s falls come despite there being many compelling reasons for gold to rally. These include uber dove Yellen at the Fed's helm, the near certainty that the Eurozone debt crisis will erupt early in the New Year, signs ETF outflows are stabilizing and China picking up the slack with regard to physical demand, after India’s demand fell from near record levels.


Gold in U.S. Dollars, 5 Days - (Bloomberg)

THE U.S. DOLLAR has been on a 30 year slide versus other competing paper currencies, in particular the Chinese yuan. If the dollar's decline, as measured by the DXY Index continues, gold may be the main beneficiary.

The dollar may be printed in unlimited quantities, though the global stock of gold increases by just 2% to 2.5% annually. Irrespective, of the huge increase in money supplies globally today. Indeed, should gold prices fall more, gold production is likely to begin falling.

This is seemingly lost on Janet Yellen and central banks, who continue to print money at record rates.

The smart money who understand gold’s importance as a diversification continue to accumulate gold.

The very poor state of the U.S. economy bodes badly for the U.S. dollar in 2014 which should help gold resume its multi year bull market.


Gold in U.S. Dollars, 1 Year - (Bloomberg)

DATA FROM THE INTERNATIONAL MONETARY FUND today shows that central banks continued to diversify into gold in October.

Turkey's holdings rose the most, with the central bank adding a large 12.994 tonnes - 16.18 million oz vs. 15.762 million oz.  Kazakhstan’s gold reserves rose 2.4 tons and Azerbaijan’s gold reserves increased 2 tonnes last month.

Germany, the world's second biggest holder of gold reserves, cut its bullion holdings by a tiny amount in October for the second time in five months.  Germany's gold holdings dropped to 108.9 million ounces from 109.01 million ounces in September. The reduction was likely for domestic gold coin sales.


Gold in U.S. Dollars  and Suspensions Of COMEX Gold Trading - 3 Month (Bloomberg)

GOLDMAN SACHS Inc. has come out with another of their widely covered market predictions.

Gold, iron ore, soybeans and copper will probably drop at least 15% next year as commodities face increased downside risks even as economic growth in the U.S. accelerates, according to Goldman.

As we noted before, Goldman’s gold calls and crystal gazing have been poor at best. Indeed, some suspect that while Goldman is advising clients to sell, they may be on the other side of the the trade going long.

News This Week
* China to Start Interbank Gold Swap Trading November 25
China, on track to overtake India as the world’s largest gold consumer this year, will start interbank swaps trading next week in a move to further open up the domestic precious metals market. China gold swaps to trade on China Foreign Exchange Trade System, according to a statement on CFETS website yesterday. Gold swaps to settle and deliver via Shanghai Gold Exchange.
(Bloomberg)

* China's planned crude oil futures may be priced in yuan 
 The Shanghai Futures Exchange (SHFE) may price its crude oil futures contract in yuan and use medium sour crude as its benchmark, its chairman said on Thursday, adding that the bourse is speeding up preparatory work to secure regulatory approvals.

China, which overtook the United States as the world's top oil importer in September, hopes the contract will become a benchmark in Asia and has said it would allow foreign investors to trade in the contract without setting up a local subsidiary.
(Reuters)

* Germany Lowers Gold Reserves in October, IMF Data Show
Holdings drop to 108.9 Million ounces vs. 109.01 Million ounces in September., data on IMF website show. (Note: Likely for domestic gold coin sales)
(Bloomberg)

* Gold-Put Options Surge as Futures Slump to Lowest in Four Months
Put options on gold, giving the owners the right to sell Dec. futures at $1,200/oz and $1,250/oz, more than tripled on the Comex in New York after the metal slumped to a four-month low.
Puts giving the owner the right to sell at $1,200 rose to $2.30 from 70c on estimated volume of 1,259 contracts, the third most-active option.

Puts giving the owner the right to sell at $1,250 jumped to $15.10, the highest in a month, on estimated volume of 2,206 contracts, the most-active option
Futures for Dec. delivery fell as much as 2.6% to $1,240.20/oz, the lowest since July 9
(Bloomberg)

* China Oct. Silver Imports 230.8 Tons, Customs Says
Silver imports by China were 230.8 tons in Oct., compared with 243 tons in Sept., according to data released by customs agency today
(Bloomberg)

* UBS Estimates 36% of South Africa Gold Industry is Losing Money
Estimate based on spot price of $1,260/oz, UBS says in report dated yday.
In 3Q, 28% of SA gold industry was loss-making, based on gold price of $1,330/oz
Sector lowered 3Q all-in costs by 20% q/q to $1,138/oz
“Further unit cost reductions will be challenging to deliver”
(Bloomberg)

* CME Lowers Gold and Silver Margins
CME lowers Comex 100 Gold futures (GC) initial margins for specs by 9.4 percent to $7,975 per contract from $8,800
CME lowers Comex 5000 Silver futures (SI) initial margins for specs by 11.1 percent to $11,000 per contract from $12,375
(Reuters)

Conclusion
There is likely a floor under gold prices at the $1,200 level and that should again provide strong support. There are no guarantees regarding price ever - particularly in the short term. However, gold production may fall at prices below $1,200 as it becomes uneconomical for many gold mines to operate profitably.

In South Africa, no longer the world's largest producer, (which is now China) but still a major producer, there are estimates that 36% of the South African gold industry are loss making even at today's spot prices - $1,250/oz. In 3Q, 28% of the South African gold industry was loss making, based on a gold price of $1,330/oz.

The short term technicals remain poor and the trend remains lower so we remain bearish for next week despite the strong seasonals. November, December and January are traditionally strong months for gold due to year end fund allocation and in recent years Chinese New Year demand.

It remains prudent to ignore short term noise and day to day price movements. Instead focus on physical gold’s importance, either in your possession or in allocated gold accounts, as financial insurance and as a vital diversification for investors and savers today.

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Wed, 11/27/2013 - 14:33 | Link to Comment MeelionDollerBogus
MeelionDollerBogus's picture

Gold's actually in an up-trend since July & it's the up-trend that will end at 3500/oz in around 18 months, maybe 24.

There are no round-number support-levels, no linear support/resistance levels, and articles which state this are bunk.

Algo's never trade on round numbers, they trade on volume betting on each side up or down of the spot at a given millisecond & they are the dominant players.

Goldcore's getting almost as annoying as Dan Norcini on KWN about this kind of nonsense.

Fri, 11/22/2013 - 15:23 | Link to Comment steveo77
steveo77's picture
Kennedy's murder, and the nuclear industry have a connection through the Economic Hitman.

If you have never seen this Kennedy speech, its worth listening too. Speech, transcript, and interpretation are here.

http://nukeprofessional.blogspot.com/2013/11/kennedy-was-killed-for-trying-to-expose.html

The question of "who killed Kennedy" is a false argument, distractionary. It doesn't matter who pulled the trigger(s), the Economic Hitman hit Kennedy. The powers that be that profit from big projects and control, hit him.

Fri, 11/22/2013 - 13:51 | Link to Comment MFLTucson
MFLTucson's picture

Gold will do nothing till the world has had enough of this courrpt goverment and our courrpt financial syatem.

Wed, 11/27/2013 - 14:27 | Link to Comment MeelionDollerBogus
MeelionDollerBogus's picture

but corruption has juicy greasy goodness.
Just like bacon.
Fried by the devil.
mmmm MMM. Eat up!

Fri, 11/22/2013 - 13:30 | Link to Comment eddiebe
eddiebe's picture

Until a new pricing mechanism is found, gold priced in currency is at the mercy of the printers, because they can manipulate the price of gold with their various 'tools'. Fundamentally, there is a war going on for perception in the minds for the masses of 'consumers'. Too bad that in the streets of the United states you can't even trade a one ounce golden eagle for a cup of shitty coffee even if you were insane enough to do it. Thing is though Asians know very well the value of gold, because they remember past regimes stealing from them by devaluing. No wonder our current owners are fighting with every tool available to them to keep perceptions of the value of the precious metals obscured and in contempt.

My bet is  that at the same time as they (our owners who are far from stupid) are playing the suppression game they are grabbing as much as they can, while they can, right along the Asians and all those that understand golds value.

 

Fri, 11/22/2013 - 13:25 | Link to Comment Sufiy
Sufiy's picture

It is happening already - US Dollar is Not Wanted any more:

 


US Dollar And Gold - PBOC Says No Longer in China’s Interest to Increase Reserves


We are following the groundbreaking changers coming out of China after The 3rd Plenum and PBOC drops another shell-bomb on the US Dollar today. We are witnessing the end of US Dollar as the Reserve Currency of Choice now. Who will be buying all these US Treasuries after that? How can FED Taper now? We can be assured about much higher interest rates with very far reaching implications for the economy and the U.S. fiscal budget.   Timing of this release is very interesting - just yesterday Gold was killed after the release of FOMC minutes. We are entering the new dramatic stage of the Currency Wars, when China picks the old Austrian economics truth - strong currency means strong country. How long Gold Smashing can keep it down with COMEX running on fumes and record high leverage? http://sufiy.blogspot.co.uk/2013/11/us-dollar-and-gold-pboc-says-no-long...

Fri, 11/22/2013 - 13:53 | Link to Comment TalkToLind
TalkToLind's picture

It won't be long before Al Qaeda "turns up" in China.  Do they grow good opium there?

Fri, 11/22/2013 - 13:24 | Link to Comment No Euros please...
No Euros please we're British's picture

Actually I'm more impressed by the way they keep platinum down in line with gold and silver. Considering platinum mines are running at break even point now and have the prospect of having to pay higher wages or face shut downs because of strikes, you might think platinum would be somewhat higher.

I imagine the mine owners would just love to shut down and save their wage and production costs until the platinum price recovers and there's nothing like a good strike to achieve that.

Fri, 11/22/2013 - 13:08 | Link to Comment orangegeek
orangegeek's picture

Not much in the way of gold hitting near 1175.

 

http://bullandbearmash.com/chart/spot-gold-daily-surprises-tanks-25-toda...

 

There is some support near 1200.  If the USD continues climbing (as the Euro continues falling), then gold may continue to fall below 1175.

Wed, 11/27/2013 - 14:36 | Link to Comment MeelionDollerBogus
MeelionDollerBogus's picture

plenty in the way. It doesn't match the time-series rise from July onward and the rise does match a repeat of the post 2006 and post 2008 bottoms & rapid rising.

Fri, 11/22/2013 - 12:57 | Link to Comment Took Red Pill
Took Red Pill's picture

It's hard to believe gold could go significantly lower. Not gonna get much cheaper than this. Just as in stocks, you want to buy low. I wonder what the real value of physical gold is, $7000?

Wed, 11/27/2013 - 14:38 | Link to Comment MeelionDollerBogus
MeelionDollerBogus's picture

more like 50,000 but it depends on which role it serves.
if gold backstops credit issuance internationally, 50k easily.
If gold merely backstops bank issuances of loans & credit cards I can see that around 10k (internationally).
If gold backstops only currency in play but not credit I'd say 7k sounds fair.
Now that's 7k in today's purchasing power which means conceivably if the price of bread is double by then the dollar price of gold also is double the 7k mark, and other numbers quoted above.

Fri, 11/22/2013 - 14:23 | Link to Comment Mandel Bot
Mandel Bot's picture

"gold production may fall at prices below $1,200 as it becomes uneconomical for many gold mines to operate profitably."

Gold mines were operating, apparently profitably, in 2005 when gold was $500/oz. What happened to the cost of gold mining?

Or has the real value of the dollar fallen by 58% in eight years?

Wed, 11/27/2013 - 14:40 | Link to Comment MeelionDollerBogus
MeelionDollerBogus's picture

wages, food costs, energy costs & machinery costs all went up. 2005 had a very different cost structure for the inputs to mining at that time.

Fri, 11/22/2013 - 15:25 | Link to Comment proLiberty
proLiberty's picture

Two components: grams/ton of ore has only declined meaning a lot more rock must be blasted and moved to get on ounce of gold and energy costs have only gone up.

Fri, 11/22/2013 - 15:35 | Link to Comment gmrpeabody
gmrpeabody's picture

"Germany, the world's second biggest holder of gold reserves,"

That was as far as I got...

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