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Gold is at a Golden Crossroads

Sprout Money's picture




 

The price of gold is at a crossroads right now. Will it go higher or lower? The precious metal is keeping its cards close to the chest, so let us look at the fundamentals and the technicals of the gold price.

It has been two months again since we gave you an update on the gold price and, in that time, a lot has happened. Not only did gold jump up from under 1,200 USD to almost 1,400 USD, but we also noticed different changes in the gold complex as some 2013 trends had a turning point in the first quarter of this year. But let us start with a trend that is still standing: the enduring Chinese hunger for all the available physical gold in the market. Since April of 2013, demand for gold in China has truly exploded and that has not changed in 2014. In the first quarter of 2014, the demand for physical gold (through Hong Kong and the Shanghai Exchange) will probably amount to more than 500 tons; an increase of 30% in comparison to the same quarter of last year. It is probable that the demand for gold in China will decrease as the gold price increases, but these figures are remarkable for the gold market regardless.

On the other side of the spectrum, there are gold trends that are changing. As mentioned before, investors dumped their publicly listed gold funds en masse in 2013 (ETFs, ETPs…), with an exodus from their respective gold reserves as a consequence. That, however, all came to an end in 2014. Even more, the reserves of GLD – the biggest gold ETF in the world – had an inflow of 780 to 820 tons of gold; an increase of around 5 percent. Things are also changing on the futures markets. The inventory of the COMEX – the American gold futures exchange – recovered a bit in 2014, albeit modestly as you can see on the chart below.

COMEX Warehouse inventory registered

The COMEX reserves hit a low on the 23rd of January 2014, when the inventory dropped back to just 370,000 ounces of gold. Meanwhile, the reserves have grown again to 640,000 ounces, although that is still a very long way from the April 2013 high of around 3 million ounces. If the Chinese are responsible for a large part of this drainage of COMEX gold, we suspect that the futures market’s reserves will remain unimpressive for a while longer. It would take a much higher gold price to inspire more influx of precious metal into the market, as the Chinese will not sell unless it is for a good reason or a higher price; that much is certain.

But as commodities markets often work, high prices are the best medicine for high prices and low prices are the best solution for low prices. What analysts actually mean by that is that a higher price elicits more selling activity, which in turn increases the supply and puts downward pressure on the price in the long run. On the other hand, lower prices cause for less gold to enter the market, which creates scarcity and, in turn, drives prices up. In the gold market, we have reached that boiling point. The market appeared to be literally and figuratively sold out in 2013, which is why the smallest rise in demand causes a jump in price. That is actually what we have actually experienced in 2014 as the gold price jumped up by almost 200 USD.

Gold at a golden crossroads

Although 60 USD has already been cut from the recent jump, the trend has not changed as you can see on the chart above. Moreover, the chart is about to make a ‘Golden Cross’, which involves a crossover to the upside of the short-term moving average (50-day) and the long-term moving average (200-day). In technical analysis books, this is signal is considered as one of the most powerful and bullish signals. Although it is still too early to tell, the situation and the above chart is shaping up to look a lot like the Golden Cross from 2009. In that year, negative sentiment among investors and scarcity on the physical market set the tone as well.

Still, it is important to keep our eyes on the ball here. If history is any indication, the gold price rose by 1,000 USD (+111%) in 2.5 years’ time after the 2009 ‘Golden Cross’ on the gold chart. A comparable increase in gold today would catapult us to 2,800 USD by the summer of 2015. We are not that far yet, however. At the moment, gold is consolidating its break-out and a further decrease to 1,275 USD is definitely possible, implying a 50% correction. The upward trend, however, will be confirmed over the coming weeks if the turnaround is validated. We are expecting the gold price to consolidate further over the second quarter after which the price can resume its ascent in H2 of 2014. The possibility is real that the previous record might be tested at that stage already, although it is a bit too early to tell. The 1,550 USD resistance level would have to be taken out with confidence to do that regardless, after which the road is open to 1,600 USD and beyond.

Gold is picking up the pieces from a very tough two years and investors have become side-tracked because of the velocity of last year’s price drop. Today, however, gold is surprising friend and foe and once again in the right direction. The Golden Cross, which is forming on the chart, should underline the change in trend. We foresee volatile times for gold, but we expect that the secular bull market has resumed after a cyclical correction and remain proponents of expanding portfolio positions in gold and gold mining stocks.

 

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Fri, 03/28/2014 - 05:29 | 4601769 rex-lacrymarum
rex-lacrymarum's picture

The record of the 'golden cross' as a bullish indicator for gold is downright terrible....in fact, it is a bearish indicator in the vast majority of cases. During the bull market phase, the best buying opportunities coincided with 'death crosses'. 

Thu, 03/27/2014 - 16:59 | 4600232 SAT 800
SAT 800's picture

There is no golden crossroads; there is no moment of truth. Gold is the truth. Always. Don't start listening to prophets; they have a terrible track record.

Thu, 03/27/2014 - 16:49 | 4600204 cpnscarlet
cpnscarlet's picture

I still think PMs are the only thing of value right now,

But how do I go short Sprott, Sinclair, Leeb, Embry, Maguire et al Analysis????

Thu, 03/27/2014 - 16:24 | 4600120 Haager
Haager's picture

Let's see if 1281 (Harmonics)-1279 (EW) holds. If that breaks - Bye gold.

If it holds we see 1425+- within the next move - but I still expect gold to end up at around $1000 in June.

Thu, 03/27/2014 - 13:55 | 4599373 TheRideNeverEnds
TheRideNeverEnds's picture

I just covered my short gold position at 75% of my target so gold will probably go down another $300 from here.  

Thu, 03/27/2014 - 13:00 | 4599147 Notsobadwlad
Notsobadwlad's picture

Pass the sugar. This gold is a little hard to swallow.

Thu, 03/27/2014 - 11:11 | 4598561 Obama_4_Dictator
Obama_4_Dictator's picture

Remember the part in the bible about throwing your Gold and Silver in the streets because it's worth nothing....I think it's going in that direction. 

Thu, 03/27/2014 - 14:54 | 4599683 mt paul
mt paul's picture

"Remember the part in the bible about throwing your Gold and Silver in the streets"

 

throwing it at cats

is more fun ..

Thu, 03/27/2014 - 12:46 | 4599075 somecallmetimmah
somecallmetimmah's picture

Which street *exactly* do you live on again, sir?  And how large a container should I bring?

Thu, 03/27/2014 - 11:26 | 4598646 RevRex
RevRex's picture

Ummm sure thing, Obama_4_DickTaster

Thu, 03/27/2014 - 12:48 | 4599082 Obama_4_Dictator
Obama_4_Dictator's picture

Hey, I'm a huge bug trust me, but time is getting short where money means anything....jsut saying

Thu, 03/27/2014 - 13:45 | 4599335 InTheLandOfTheBlind
InTheLandOfTheBlind's picture

"you have sown much, and bring in little.  You eat, but you don't have enough.  You drink, but aren;t filled with drink.  You clothe yourselves, but no one is warm, and he who earns wages earns wages to put them into a bag with holes in it."  Haggai 1:6

 

funny how these types of verses never come up in an argument against the validity of scripture... 

 

 

Thu, 03/27/2014 - 16:18 | 4600097 somecallmetimmah
somecallmetimmah's picture

Haggis is a book in the Bible?

Who knew?

Thu, 03/27/2014 - 11:04 | 4598529 lakecity55
lakecity55's picture

I do not think anyone knows how much gold anyone has except for the Au they can hold in their hands.

Thu, 03/27/2014 - 14:50 | 4599669 mt paul
mt paul's picture

if you can't throw it

at the old ladies cat

 

you don't own it 

Thu, 03/27/2014 - 11:04 | 4598522 Hongcha
Hongcha's picture

Being hit to preserve the perch of the Petrodollah and rook the countries setting up for paying for oil w/ gold or a basket excluding the USD.  These are the conditions at this table; put up or shut up.

Thu, 03/27/2014 - 10:11 | 4598246 F em all but 6
F em all but 6's picture

John Williams of Shadow stats says a 90% chance of the start of hyperinflation this year. I am going to empty the majority of my Sealy bank account and stock up on the necessities. Unsecured debt? Fuck the banks. When SHTF, the banks are going to shut the credit cards off. The flood of default on unsecured debt will be staggering. Filing bankruptsy might be a good way to keep creditorrs at bay as collections collapse. Hell, it may not even be necessary. What are they going to do? Go after everyone??? And at this point, I could care less about market manipulation. Just watch these fuckers try to manipulate a tsunami. This is an end game and the manipulators are becoming deperate. They will lose control and that is a mathematical fact.

 

As for Gold and silver? I am all piled in. For now what we really need is more bread and circuses from the .gov folks to keep us amused during the avalanche.

Hedge accordingly

Thu, 03/27/2014 - 13:46 | 4599338 therover
therover's picture

" Filing bankruptsy might be a good way to keep creditorrs at bay as collections collapse. Hell, it may not even be necessary"

I think you are correect. Shoot, should of the strategies be to max out the CC's on guns, ammo, food, etc. ?

Thu, 03/27/2014 - 10:40 | 4598389 fonzannoon
fonzannoon's picture

"Even more, the reserves of GLD – the biggest gold ETF in the world – had an inflow of 780 to 820 tons of gold; an increase of around 5 percent"

so....as for as there being no supply out there.....

Thu, 03/27/2014 - 16:21 | 4600105 MrSteve
MrSteve's picture

The prospectus from GLD clearly states they do not audit the gold "held" in their hired depositories and all unit or shareholders are unsecured creditors. Read that and read it again if you think you own or hold gold through GLD. When I read it, I sold out of all GLD. They are upfront with disclosures so there can be no "fraud" allegations, hence you are screwed if you are "uninformed". Sell GLD now or join the ranks of the stupid, screwed.

Thu, 03/27/2014 - 11:28 | 4598658 RevRex
RevRex's picture

Inflow according to WHO? And WHO is believable any more?

Thu, 03/27/2014 - 09:47 | 4598167 Gringo Viejo
Gringo Viejo's picture

It's pretty much accepted by all but the most obtuse, that the markets are manipulated. Yet the Tech. ANALyists keep insisting their charts have validity. Unreal..........

Thu, 03/27/2014 - 11:03 | 4598520 lakecity55
lakecity55's picture

Hey, that is what I was thinking!

The market is so manipulated, how can you ascribe normal analysis to the market and expect it to be accurate?

I plan to prudently stack (among other things) becasue I know there are going to be gyrations due to CB manipulation.

I suppose stackers are long into uncharted territory.

Thu, 03/27/2014 - 11:24 | 4598633 Kreditanstalt
Kreditanstalt's picture

Well said, lakecity55!  How can technical analysis and chartism have any meaning in fully manipulated markets?

Thu, 03/27/2014 - 12:41 | 4599057 daemon
daemon's picture

" How can technical analysis and chartism have any meaning in fully manipulated markets? "

That's a really interesting point. Probably not that straightforward, and even with deeper implications than you think. If manipulating means trying to produce information from other information to induce some events, isn't the behaviour of the manipulators themselves subject to some technical analysis ?

There are people who, apparently, are perfectly able to make consistent profits by using tools like technical analysis, manipulated markets or not.

Thu, 03/27/2014 - 09:35 | 4598124 MFLTucson
MFLTucson's picture

7 days straight where there is news about huge purchases from China, Iraq and Russia and 7 days the American led Jewish Banking gangsters have knocked gold by using fraud and deception.  This has got to end and these bastards need to be in prison.

Thu, 03/27/2014 - 11:22 | 4598626 Kreditanstalt
Kreditanstalt's picture

I suspect a lot of this particular decline has to do with commmodity futures funding deals (like copper and iron ore) in China...expect these declines to continue next week too.  The downward slope is just too smooth, too regular to be ALL Comex manipulation.

Thu, 03/27/2014 - 12:57 | 4599128 Iam_Silverman
Iam_Silverman's picture

"The downward slope is just too smooth, too regular to be ALL Comex manipulation."

Yup, methodical, programmed selling in order to preserve the price as best as possible.  Someone somewhere is unwinding a large position and trying to prevent the appearance of a market dump.  I wonder where they are rotating into - or maybe they are settling a margin call?

Thu, 03/27/2014 - 18:44 | 4600585 silverserfer
silverserfer's picture

every one that owns a share of GLD or SLV is also to blame.  Do not feed the beast. If no one bought into the paper game their ammunition would dry up. They don't like to play with their money they like to play with yours and bet againts you. That is the basic trick to all this manipulation.

Thu, 03/27/2014 - 09:21 | 4598087 ebworthen
ebworthen's picture

As long as there is the phony paper market "CONEX" for Gold - true valuation for actual Gold will be illusory.

Thu, 03/27/2014 - 10:03 | 4598239 semperfi
semperfi's picture

CONEX - love it!  CONEX will not exist, either as currently structured or at all, in 5 years.  The only reason they still exist today is due to criminals running the whole system from the top down.

Thu, 03/27/2014 - 09:59 | 4598060 semperfi
semperfi's picture

Dude, really?  COMEX?  COMEX cash settles or rolls over.  COMEX is a PAPER market.  Any article that mentions COMEX and GOLD together is a non-sequitor.  Why don't you do some analysis on GOLD, like they trade in Shanghai for one.  This article fails to mention:

1. Western bullion banks have been all but drained by the East, the West's gold has all been transferred Eastward

2. The East (China, Russia, India, other BRIICS) will soon roll out their gold trade settlement system, in steps - Iran was the prototype

3. The West is stealing (uh, rehypothi-stealing) gold from sovereigns (Saudi, Ukraine, Egypt, Lybia, etc) to satisfy Eastern delivery demands.

4. For every ounce of gold, there are somewhere near 80 or so (+/- 10?) paper claims to it.

5. All large gold transactions are done off-market and at hefty premiums.

Thu, 03/27/2014 - 11:21 | 4598611 Kreditanstalt
Kreditanstalt's picture

I'm puzzled as to why this "Comex" thing is being allowed to contribute to the "gold price" at all...any market in which shorting occurs without 100% of the metal in storage and available for every trade, every time, is an affront to free markets.

How does "trading" on the Comex find its way into the "gold price", as seen on Kitco or Sharps Pixley?

Thu, 03/27/2014 - 11:28 | 4598659 ebworthen
ebworthen's picture

"I'll gladly pay you Tuesday for a Hamburger today."

Thu, 03/27/2014 - 13:11 | 4599185 El Oregonian
El Oregonian's picture

The dirty, rotten thiev'in bastards at the central banks can just kiss my arse! May all their tongues roll-up and wither inside their miserable skulls and we never have to hear their lies again.

Just roll over and die you accursed vile serpents!

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