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Mixed Emotions for the Gold Market

EconMatters's picture




 

By EconMatters

 

Gold Crosscurrents

 

The Gold market has a lot of crosscurrents at the moment with the main negative as we write that it doesn`t pay a yield, and given the abundance of cheap money chasing every utility, bond and stock that pays a yield it has lost favor in that regard the last several years.

 

Bearish Factors

 

The interest rate cycle is also a negative for gold, and as the Fed starts hiking rates Gold usually needs other strong factors to overcome this headwind. The other headwind is that there currently isn`t a momentum trade, and since Wall Street often trades with a herd mentality, in the absence of a strong trend money just doesn`t get sucked into this trade.

 

Bullish Factors

 

Some of the bullish factors for gold are geo-political concerns, but this has mainly just provided short covering rallies so far this year, no strong bullish trend emerges after the short covering. Another will be if inflation starts ramping up, and inflation expectations start spiking ahead of the Fed`s ability to get in front of the inflation curve by being too deliberate on rate hikes. 

 

If we start getting some insolvency issues in Europe once again Gold could start ramping based in Euros as investors try to hedge their European currency risk. There are physical buying bullish pressures as consumers generally like to own gold, and they especially feel like they are getting a bargain when prices sell off. Both for the gold bugs that envision an ultimate end to global fiat monetary systems where currency debasement runs its course in an extreme momentous collapse scenario, more moderate hedgers, and countries like India and China who traditionally favor gold on a cultural basis. 

 

Shark Attacks

 

Consequently there are a lot of cross currents in the gold market, and so far in 2014 we haven`t really had the severity of ‘shark attacks’ in the market from the big banks like we saw in 2013. You know the kind where 3 banks all downgrade gold overnight, gold drops like a rock for 200 to 300 dollars, causing forced liquidations, and then once the short covering occurs gold goes right back to where it was originally trading before the shark attacks. This is a ‘shark attack’ and many markets experience them from time to time where a bunch of players gang up on a market to make money in the short term. 


Federal Reserve

 

I do think for the near term gold investors should be worried about the downside, and I am talking about the futures market, (however, this still effects the physical market in the short term) as you saw some nervous exiting before the Jackson Hole speech, they just didn`t want the exposure before the event given the chance that Janet Yellen really signaled to financial markets in a strong manner to start exiting positions that were based upon 25 basis point borrowing.


Rate Hike Cycle

 

Along these lines, as the biggest driver is probably going to be the upcoming rate hike cycle by the Federal Reserve in the US, and the Bank of England early next year with expected rate hikes, there are bound to be some hawkish interpretations made, and gold is going to get smacked around real hard sometime in the next three to six months. 

 

Hot Inflation Readings 

 

Unless there is some counterbalancing force like inflation spiking well ahead of current market expectations around the 2% level, some of these hawkish market undercurrents with regard to monetary policy are going to play out in the gold market putting downward pressure on the commodity. Just how far it goes, and to what degree does bearish sentiment bring in players who don`t normally play in the gold market will determine how much of a sale price buyers get before they feel it is safe to come in and take advantage of lower prices for their beloved commodity. 

 

Forced Liquidations of 2013

 

What happened last year is that some buyers stepped in initially at a level they thought would hold, and the gold market took another leg down, and those forced liquidations provided a real buying opportunity for gold last year. But remember the Fed didn`t actually raise rates last year, what happens when there are actual rate hikes after seven years of easy money? We will probably follow up with an article on the technical levels to watch, but the bigger point right now is just to be aware of what is coming down the gold turnpike, there will definitely be some substantial ‘shark attacks’ over the next six months, and expect some downside pressure for the commodity. 

 

Gold Bears Have Wind at their Backs as Technicals likely to fail to downside over Near-Term

 

 

The feeling here is that the last six months will seem comatose to the volatility and strength of some of the moves in the gold market that are about to occur as key technical levels of support fail to hold. We not only expect these technical levels to get tested, we expect that the momentum during this period will be sufficient enough to break many key technical levels that have held so far this past year. Be selective and careful in playing the long side of the gold market in the near term as the primary catalysts and ultimate drivers are probably bearish in the near term, and gold bulls will be running against a severe headwind in the market!

 

 

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Mon, 09/01/2014 - 15:36 | 5168543 Herdee
Herdee's picture

Gold is going to get smacked real hard if interest rates rise?That's bullshit.Interest rates will only rise if the Fed creates enough inflation.The biggest factor this time around is cost of labour increases.They're just not there.And even if interest rates happen to bump up a little in order for the Fed to get off the cellar floor(like Canada which is doing better),anybody with a brain knows a very simple equation which is inflation(money printing)ends up in interest rate increases which is good for gold because inflation is rising.The B.S. you here from the western mainstream manipulated media is that the economy is really picking up.Go to KingWorldNews and listen to a few pros instead of the B.S. from the dumb scripted bimbets on U.S. tv.People better start to wake up to what their government is doing to them and be aware of their government creating a fascist state.Government central planning of the U.S. economy reminds me of exactly the same thing that the Soviet Union had.All these direct manipulations in the markets thinking they know what they're doing.They don't and neither does the Fed.Look how many times they've been wrong.They're clueless clucks in their own academic world and out of touch with society and the structural problems that exist in society today.If you took millions of Americans off of food stamps by cancelling the program in order to save the federal government money,you'd have the same conditions as the great depression with everyone on the streets standing in soup lines for hundreds of yards all day and half starving to death.It's disgraceful what's being done to the American dream by fascism.

Mon, 09/01/2014 - 14:19 | 5168260 Hongcha
Hongcha's picture

Well said silverismoney and monopoly and thunderchief.  Where we are now, and with the Western PTB obviously ginning up multifront woar, ANYthing could happen with the moneychangers who set the prices in the West.  At this point and until matters are transferred to a more honest market, they could run this paper abortion down to $500/oz despite industry average extraction costs at $1200/oz.  It literally does not matter particularly if we are in World Woar III.  I am firmly in the camp that you buy physical because here or another $100 lower is the natural bottom.

We have watched a market die - the Western paper PM market - maybe not so much die as be invaded like larvae invade a numbed host.  A horrent phenomenon but natural.  Be one of the smart, patient ones and gtf away from the thing.

Mon, 09/01/2014 - 13:32 | 5168080 Market Analyst
Market Analyst's picture

Zerohedge & Gold Bugs like peanutbutter and jelly

Mon, 09/01/2014 - 13:02 | 5167954 SilverIsMoney
SilverIsMoney's picture

Totally Wrong. The large specs are ready to get fleeced again by the commercials. Wake up to the way the manipulation has been played for over a year now.

Large specs go long on some technicals and the bullion banks go short - price dies.

Large specs ride the "technicals" to go short as the bullion banks kill price so the bullion banks/commercials flip long and burn the large specs again as price rises. 

Because the large specs are retards and incapable of realizing the gold market is fixed this process goes back and forth back and forth as the specs just keep getting crushed by the commercials who control price. 

Latest COT shows the Large Specs going short again while the Commercial's increase their net long position. Meanwhile all the cycle dope heads and technical dumbfucks (who never seem to care we are right around mining costs in silver and gold) are writing about price smashes again.

Obvious to me we're witnessing another set up ala mid-June. Once the metals boom up the script will flip again and we'll get pummeled back down to these levels were at now. We've literaly been channel trading for 18 months and no one has been able to wake up to the fleece yet... this process will keep going back and forth until the large specs finally decide to stop playing (that has happened slowly - look at the OI in gold - at multi-year lows despite more and more margin cuts by the CME) OR until we finally reach the end and the charts die.

I have a feeling we're aways away still and the commercials will keep fleecing the specs until kingdom come - articles like this only prove my point because i'm sure it's the same stupid argument the specs are making to themselves without realizing it's all a farce and they are about to be burned again by the manipulation.

Just buy the physical on the dips and wait for the end. This will end up being the greatest trade of the decade for those who are patient...

Mon, 09/01/2014 - 12:46 | 5167902 Jack Sheet
Jack Sheet's picture

What a load of horseshit. This idiot is still talking about CRIMEX "gold" "prices". Incurable.

Mon, 09/01/2014 - 12:33 | 5167849 wikiwoozie
wikiwoozie's picture

Simplistic reasoning for simpletons... (see Point 2 below)

Read this and learn something about the (fallacy of your) historical relationship between interest rates and gold...

http://www.safehaven.com/article/34904/gold-rising-rate-fallacy

And EVEN if this gold-interest rate fallacy WAS TRUE... Here are a few things to consider regarding the consequences of actually raising interest rates in a world DROWNING IN DEBT (again, see Point 2 below):

http://www.youtube.com/watch?v=vQtiBcFnQ1A

http://www.youtube.com/watch?v=KYW5OGWfqJc

All articles like this attest to is either: 1) willful (or iinsidious) misdirection of investors; 2) extraordinary faith (or gullibility) in fiat based currencies with no sense of their history of inevitable abuse and demise; 3) some combination of 1 and 2; or 4) a (c)overt recognition that banksters rule the roost and will continue to do so.

Finally, as a general rule, beware of articles (like this) that pejoratively portray those with minds to think for themselves regarding this economic (financial) fubar as "gold bugs," or that gold is a 'purty' commodity, or other blah blah blah.

Having said that, can the 'price' go down...? You betcha it can, thanks to idiots, crooks, and simpletons like you. If the shoe fits, wear it! Your day(s) of reckoning will come, whether you know or understand what hit you or not...

Mon, 09/01/2014 - 12:22 | 5167790 Bossman1967
Bossman1967's picture

Us gold bugs gonna get smacked again I see but glad I have some and not enough that it cant just sit there till the math adds up because 1 plus one does equal two. Not this bullshit math of today

Mon, 09/01/2014 - 12:01 | 5167709 monopoly
monopoly's picture

I have said it a dozen times here, they WiLL NOT tighten, they will not raise interest rates. They may try 1/2 point but when the markets voice their concern and collapse not only will they reverse that decision, they will start QE 4, 5 or 6. And there is no asset on the planet that is undervalued as gold, silver and miners. Can we get another hit, of course. But I am not selling one share or one ounce of anything. Forgive me if I pass on CMG, AMZN, NFLX or PCLN. 

Ridiculous. Who the hell cares about the short term. I am trying to protect my family from these insane policies and ignorant politicians who have no clue how to run a country club much less a country. 

Happy Holiday Amerika!

Mon, 09/01/2014 - 11:08 | 5167509 constantine
constantine's picture

After a quadroupling of the money supply, spare me the blather about tightening due to some supposed rate hike that has been discussed for the last 5 years now.

 

Mon, 09/01/2014 - 10:23 | 5167276 messymerry
messymerry's picture

EconMatters clearly and specifically described gold as a "commodity", completely disregarding it's monetary status.  Gold is still money in most parts of the world.  Only in the rarified atmosphere of the HFT bankster universe is gold not money.  Nope, the banksters are definitely not out of touch.  It's time to run the moneychangers out of the temple again!!!!!!!!!!!!!!!!!!!!!!!!!!!!!   ;-)

Mon, 09/01/2014 - 09:58 | 5167210 Latitude25
Latitude25's picture

I don't care what a bunch of speculators in the west are doing.  I watch Asian physical demand and it is still robust and that is what will eventually rule the gold market.

Mon, 09/01/2014 - 10:23 | 5167279 thunderchief
thunderchief's picture

Oh God,

Here we go again with more blather and garbage about gold, the only hard asset not in a bubble.

If you don't know it by now these idiots will never give up until the market has been cleanly ripped from their hands and handed to the east, the physical, the pricing mechanism, and of course the mine supply chain.

Until then, I give it a few more years, enjoy the bargain provided to you by those crooks the CME, LBMA, COMEX and of course JPM.

Thanks guys, if I forget to say it next decade.

Mon, 09/01/2014 - 09:53 | 5167198 quasimodo
quasimodo's picture

Very astute observation, and besides, who needs the barbaric relic anyway? To be sure it's purty, and has a nice feel to it , but I still can't spend it anywhere. It's tradition silly!

Mon, 09/01/2014 - 09:51 | 5167195 philosophers bone
philosophers bone's picture

How can anyone purport to provide a "technical" analysis of ANY market these days, never mind the gold futures market!!  Save your energy.  And your credibility.  It implies that there is a free market and actual "investor" sentiment and we all know that isn't true, so why pretend?

Mon, 09/01/2014 - 14:46 | 5168372 RockyRacoon
RockyRacoon's picture

The whole article was gibberish, and throwing a "chart" to lend credibility was useless.

What I read:  Gold could go up, or it could go down, here's a chart to prove it.

Mon, 09/01/2014 - 09:36 | 5167156 lunaticfringe
lunaticfringe's picture

Let me summarize. With no QE, the deflation is here. Gold will go down with everything else. That 'bout covers it, eh?

 

Mon, 09/01/2014 - 10:05 | 5167226 Latitude25
Latitude25's picture

Meanwhile mystery buyers are still buying 100s of billions in treasuries.  Yeah.  QE is ending LOL

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