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“I Can’t Deny It – The Outlook For Gold Isn’t Pretty Right Now”

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“I Can’t Deny It – The Outlook For Gold Isn’t Pretty Right Now”

by Dominic Frisby 

Today we turn our attention to the precious metal that once brought joy and riches to its owners, but now seems to bring nothing but despair and disappointment. I’m talking, of course, about gold.

Dominic Frisby

There’s no point fighting it – gold is in a bear market - Money Week

It’s taken yet another tumble. After a miserable early summer, which saw new lows at $1,080 an ounce, gold enjoyed a pleasant August to October with a nice 10% rally. But it didn’t last writes Dominic Frisby in his just released article for Money Week.

Why it is I’m not sure, but the second half of October rarely seems to be a good time for gold – and so it proved this year. All those late summer gains have now been given back and, once again, gold is flirting with its lows in the $1,080-$1,090 area.

For all the excitement, it was just another ‘dead cat bounce’ – a so-called ‘suckers’ rally’, as the Americans so cruelly put it – in an ongoing bear market.

I’d love to tell you that $1,080 is the low – that this is the mother of all buying opportunities, that you should all max out your credit cards and buy every flake you can possibly get your hands on.

But gold-lover though I may be, that is not what I see next.

Until Monday’s stabilisation, we’d had something like 13 down days in a row, which is extreme, even by the standards of this bear market, so some kind of steadying of the ship is likely.

But the bottom line is that this is a bear market. And the trend is down. Fighting the trend is no more effective than fighting the tide or fighting the wind. You’re better off accepting it for what it is, and going with it.

 

How far could gold fall?

I still have $1,050 as my target for this year. And I suspect we’ll get there.  This target is based on nothing more than price action.  

Below is a ten-year chart of gold. I have drawn an amber band in the $1,000 to $1,050 area. On the way up it was a wall of resistance that lasted for almost two years. Let’s hope it is a similarly strong wall of support on the way down.

The question is, which of the two – the downward trend or the wall of support – will prove stronger?

 

Ten year gold price chart

I’d also draw your attention to that dashed red line I have drawn. This is the 52-week simple moving average – it shows the average price of the previous 52 weeks, the previous year in other words.

In a bull market, it is sloping up. Rallies will often retrace to this line before the next leg up (they did this between 2001 and 2009). Post-2009, the bull market was so strong, rallies did not even retrace that far.

In a bear market however, the opposite happens. It trends down – because prices are getting lower and lower. Bear market rallies – or suckers’ rallies – tend to retrace to it before the next leg down. It marked the point at which the latest rally petered out. It’s a useful long-term indicator.

Sure, it is not declining as steeply as it did in 2013, but it is still declining. Before we can declare “the bear market is dead” and “long live the bull market”, we need to see that line flatten out and then begin to rise. It will happen one day – just not yet.

If that amber zone of support does not hold, then, based on price action alone, the $850 area comes into play, and after that $730. Even in my current bearish frame of mind I’d be surprised to see the latter, but we’ll have to see what happens over the next few months.

One reason to worry about gold

I don’t want to put the wind up you. I know how negative I’m sounding this morning. But here is something that really concerns me about the gold price.

Relative to other commodities – and, please, don’t let’s get into an argument about whether gold is a commodity or not – the gold price is still very strong. It may not feel like it, but it is.  This is the chart that every goldbug does not want to see.

It shows the price of gold relative to the price of commodities – as measured by the CRB, the world’s oldest commodities’ futures index – since 1980. When the price is high, that means gold is expensive on a relative basis. When the price is low, gold is cheap.

Gold price relative to commodities

Compared to other commodities, gold is not far off all-time highs. That’s because, of course, commodities – be they oil, natural gas, base metals, softs, grains – have all fallen dramatically in price. Most are at multi-year lows. Gold is ‘only’ down 40%.

For that ratio to come back to its long-term averages – in other words if we are to see some sort of reversion to the mean (and there is no guarantee we will) – either gold needs to come down a lot more, or commodities need to rise.

I’m not sure that, with deflationary forces abounding in the world, commodities are going to rise in price by anything that significant any time soon. I may be wrong, of course. But the environment for them isn’t so great, I’d say.

So there is one reason gold could still have further to fall. It is overvalued on a relative basis [to commodities].

I’m hanging on to my gold hoard

I’m not selling my physical. I’m pretty confident a day will come when I’m mighty glad I own it. I also have a few positions in mining companies that I’m not currently selling – I’ll tell you about those in a future Money Morning. I’m actually pretty excited about a couple of them.

But I’m also sitting quite heavily in cash. And in my trading account I’ve been shorting gold, silver (as I mentioned last week), palladium (as mentioned about a month ago) and various gold mining indices (as a hedge). This has been working well.

I closed out most of my shorts on Monday, in expectation of some kind of respite rally. I’ll check out the action over the next week or so, before deciding what my next move is.


Editor's Note:

Dominic Frisby is one of the more informed analysts on the precious metal markets and this is why we have had him on our webinars. We share his concern about prices in the very short term particularly for those trading markets. However, taking a longer term perspective we see gold and silver as being undervalued at these price levels.

While gold may be overvalued versus the wider commodities complex which have collapsed, arguably it is undervalued versus stocks, bonds, property, art and other markets many of which are near or at all time record highs … floating on a sea of artificial QE induced liquidity.

 

It is important to note that the current weakness of gold and silver is primarily in dollar and sterling terms. For investors in Canada, Australia, New Zealand and of course the EU - who have seen their currencies depreciate - gold is higher in local currency terms and once again acting as a hedge - see table above.

Still depressed gold prices are providing an opportunity for those seeking to get an allocation to bullion and as we advised on our recent webinar - dollar cost averaging remains prudent.

As ever, it is important to use gold and silver bullion as risk hedging assets and financial insurance in a diversified portfolio.

Read more on the GoldCore.com blog


Must-read guide to international bullion storage:

 

Download Essential Guide to Gold Storage in Singapore

 

 

Download Essential Guide To Storing Gold In Switzerland

 

DAILY PRICES

Today’s Gold Prices: USD 1088.60,  EUR 1013.17 and GBP 718.36 per ounce.
Yesterday’s Gold Prices: USD 1092.50,  EUR 1017.23 and GBP 723.50 per ounce.
(LBMA AM)

Gold in 1 year

Gold closed down $2.70 yesterday to finish the day at $1088.70. Silver closed at $14.42, down $0.14. Platinum lost $12 to $898.

 

IMPORTANT NEWS

Gold rises for 2nd session in a row on technical ‘bounce’ – MarketWatch
China’s industrial production falls to six-month low – The Telegraph
Gold edges up as dollar dips, still near 3-mth low on US rate view – Reuters
Gold Holds Near Three-Month Low as Rates Outlook Buoys Dollar – Bloomberg
U.S. wholesale inventories post largest gain in three months – Reuters

IMPORTANT ANALYSIS

Greek debt deal would encourage mass write-off calls in Spain, claims finance minister – The Telegraph
Portugal Is Potentially A Very Big Deal – Dollarcollapse.com
U.S. banks said to hold $10 trillion of ‘risky’ trades – Gata.org
London’s property market is Britain’s Hunger Games – The Guardian
Why investors are shorting Canada’s housing market – CNBC

Read more News & Commentary on GoldCore.com

 

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Thu, 11/12/2015 - 12:22 | 6782297 Karl Napp
Karl Napp's picture

.

Thu, 11/12/2015 - 12:17 | 6782267 Karl Napp
Karl Napp's picture

Gold is not a commodity.

Thu, 11/12/2015 - 12:12 | 6782242 Able Ape
Able Ape's picture

Things are NOT right for a lot of things; why should precious metals be the exception if one views the current price as a reflection of REALITY.....

Thu, 11/12/2015 - 11:47 | 6782059 MFL8240
MFL8240's picture

All time high in Buillion purchases and all time high in US fraud in the Comex does not spell a bad outlook sir.  It spells fraud.

Thu, 11/12/2015 - 08:48 | 6781263 RabbitChow
RabbitChow's picture

When just about everybody is saying that gold is ready to crash, its time to start buying, because. The price will be going up very soon.

Thu, 11/12/2015 - 08:36 | 6781244 Kagemusho
Kagemusho's picture

Like clockwork, the sun rises in Asia, the price goes up. Sunrise on the Eastern Seaboard of the US, and the beat-down commences. To my mind, there's a race between China and Russia and the Fed to see when the former two announce their currencies are gold backed. Since Western financial gold regulation systems are non-existant, impotent (by design) to stop the manipulations, this beat-down will probably end only when Russia and China make that announcement.

Thu, 11/12/2015 - 06:32 | 6781102 The best Sun
The best Sun's picture

China just found 15 million ounces on the sea bottom.

If the drilling can be done economically, can you say gold backed yuan/sdr motherfuckers.

That's a serious boating mishap someone has had.

China discovers undersea gold reserves estimated at $16.4bn — RT Business

Thu, 11/12/2015 - 06:02 | 6781085 El Hosel
El Hosel's picture

Gold gets monkey hammered 10 daze in a row..... Yes indeed, time to worry. Brilliant mo fukers.

Thu, 11/12/2015 - 02:41 | 6780891 OZZIDOWNUNDER
OZZIDOWNUNDER's picture

So  - -you've been shorting Gold along with ALL the other Fuckers? Well FUCK you !

Gold is only worth having to sit on for when it's needed or wanted to purchase something of value. It's NOT for trading/shorting if you believe in it's value . Why would you ?

Thu, 11/12/2015 - 00:40 | 6780669 luna_man
luna_man's picture

 

 

I may not get what I paid for it, I figure I'll get something!

 

not so sure about the dollar

Wed, 11/11/2015 - 23:10 | 6780356 SamEyeAm
SamEyeAm's picture

PHYSICAL gold is in a bear market? Really? Do tell.

Wed, 11/11/2015 - 22:35 | 6780159 . . . _ _ _ . . .
. . . _ _ _ . . .'s picture

If the enemies of the Neocons have most of the gold already, the best way to hurt their economies is through the price manipulation of it. The question is not in the fiat value of gold, but who can hold their breath the longest.

When a wheelbarrow full of dollars won't be enough to buy a loaf of bread, an ounce of gold will still get you a really nice suit.

By trading oil for gold, Putin is doing exactly what got Gadaffi killed.

Wed, 11/11/2015 - 22:10 | 6780070 harrybrown
harrybrown's picture

I found this very interesting, tho also a dollop of propaganda. The potential is there, but will it all play out?
http://russia-insider.com/en/politics/grandmaster-putin-sets-his-gold-trap/ri1272

 

Wed, 11/11/2015 - 20:38 | 6779634 Kina
Kina's picture

The thing about making predictions about the Gold price is that it is entirely Artificial, meaning it isn't determined by any fundamentals at all.

Thus prediction on the gold price beyond the desires of the Central bank desires and also ability to manipulate the Comex etc is meaningless.

However, prices far too low against its proper measuring stick simply allows the draining of physical gold from markets into strong hands, creating a greater crisis and upward pressure on gold as soon as Fed control breaks.

Wed, 11/11/2015 - 20:27 | 6779590 NubianSundance
NubianSundance's picture

I would recommend listening to these guys before buying gold right now, unless you intend to hold for 20+ years before selling.

http://youtu.be/CTZj58qpnFA

Thu, 11/12/2015 - 02:43 | 6780894 OZZIDOWNUNDER
OZZIDOWNUNDER's picture

Fuck you re the 2O+ years Bullshit ! Ridiculous beehatch

Wed, 11/11/2015 - 20:23 | 6779574 Kina
Kina's picture

Indeed paper Gold is in a programmed bear market, allowing many to buy physical gold at discount to its 'real' worth in relationship to real world data, to wit M2.

The gold charts represent the panic level of the Central banks.

Wed, 11/11/2015 - 19:18 | 6779349 Grandad Grumps
Grandad Grumps's picture

No one has ever answered the question for me of: Why Gold?

The only answer I have ever seen in print is: Because it has always been... SO WHAT!!

Why gold now?

Wed, 11/11/2015 - 19:29 | 6779385 Conax
Conax's picture

I got this.

The bankers hate it when people buy phyzz, taking money off their tables and gold from their vaults.

Many of us hate the bankers for what they've done to our country and us, ergo we do whatever we can to irritate their ulcers and colitis.

We wish them many severe and painful maladies.  Buy some silver and help us in our struggle to elevate their blood pressure.

Wed, 11/11/2015 - 22:11 | 6780082 harrybrown
harrybrown's picture

Amen to that Bro

Wed, 11/11/2015 - 18:57 | 6779263 stemsmexico
stemsmexico's picture

Hello .. I saw your statement, that you have given up on Gold.  according to my charts at stockcharts.com.. Gold is poised for a Rallly as early as Tomorrow, Nov 12th,  If any of you are subscribers to stockcharts.. I am Clayton Tom, no 15 from the Top.  Or if you are not with stockcharts.. Contact me at stemsmexico@gmail.com and I will share a few Charts with youl. just give me your email. I got a Sell signal for the USD at the Open today which correlates with aq Rally in Gold then Silver.

Regards

Clayton Tom, former Asst VP Commodities with Dean Witter. 45 years ago.

 

Wed, 11/11/2015 - 20:03 | 6779518 DisasterCapitalist
DisasterCapitalist's picture

Charts do not predict the future. As the former asst of commodities for DW (LOL), you should already know that.

Wed, 11/11/2015 - 18:15 | 6779131 Tegrat
Tegrat's picture

I have my stacks.

 

I just looked at the monthly chart since 2000. I see no fib support until $850.

 

This is the price about where I think gold would become unobtainium as there will be only paper and no phys. At this rate it could take years to get down there.

This also means all buyers since the peak will not have a good day until the reset and the bid after the great default.

 

Even that day wont be without stresses with the FSA running around taking what they can.

 

Gold needs to sh*t or get off the pot.

Wed, 11/11/2015 - 17:59 | 6779077 ExploitedCitizen
ExploitedCitizen's picture

Pick out which investment survives a currency crisis:

A - Real Estate

B - Stocks

C - Bonds

D - Gold       <-

E - Fiat currency

The price will go down until the miners go broke and the supply halts.  At that point the price may stay down, but the physical commodity will be scarce.  The Chosen one bankers will have locked you into their fiat money scam at that point.  Barrick is at $7/share, 4 years ago it was $60/share.  Gold can only go so low before the mines stop, remember that.  Stocks/Bonds can go to zero.  Also, the bankers are buying it up by the tonne, same with the Chinese and Russians.  I see a stock down almost 900%, that tells me gold isn't exactly profitable at the moment.

Wed, 11/11/2015 - 18:24 | 6779084 VWAndy
VWAndy's picture

My tools will hold value very nicely thanks.

 

 I dont measure the value of my tools in fiat.

Thu, 11/12/2015 - 05:40 | 6781075 FinalEvent
FinalEvent's picture

My tool for transaction is bitcoin.

Thu, 11/12/2015 - 14:18 | 6782960 VWAndy
VWAndy's picture

Ah no.

Wed, 11/11/2015 - 17:15 | 6778884 VWAndy
VWAndy's picture

All gold bugs need to pull their heads out. Gold is barter. Ya want, no you need to know its true value in real terms.

 If you are tiered of kissing banker ass? Stop.

 Its your gold you set its value. The way thats done is by trading it for things with real value to you.

Wed, 11/11/2015 - 17:04 | 6778816 silverserfer
silverserfer's picture

So the author is saying gold is a buy right now? Mind blowing. 

Wed, 11/11/2015 - 16:53 | 6778769 cpnscarlet
cpnscarlet's picture

But but but....

Jim Sinclair said.....

Wed, 11/11/2015 - 16:46 | 6778745 Flying Wombat
Flying Wombat's picture

Very important points Kranzler is making here...and I totally agree with his thesis.  ...and once the stock market falls overall, people are not going to be saying the outlook for gold "isn't pretty" -- Eric

# # # #

The Silent Scream Of Crashing Stocks - Dave Kranzler

http://thenewsdoctors.com/?p=538630

Wed, 11/11/2015 - 16:42 | 6778719 VWAndy
VWAndy's picture

Take your gold to a real producer. Make a deal for something with a real value. Then you will know its true value.

 Please stop thinking in fiat terms. They suck.

Thu, 11/12/2015 - 10:00 | 6781525 herkomilchen
herkomilchen's picture

Correct, but 99.999% of real producers won't accept gold, only fiat.  Or if they are the 0.001% that do accept gold the amount is based on the fiat conversion rate because they need fiat to pay their suppliers.  That forces gold holders to care about the fiat/gold conversion rate whether they like it or not.

Thu, 11/12/2015 - 15:26 | 6782950 VWAndy
VWAndy's picture

As a real producers you are wrong about taking gold for my fruits. I will make that deal all day long.

 

 There is a differance between retail and true producers when it comes to bartering. Real values can only be found by those two involved in the trade without any middlemen. Keep the skimmers out of your deal.

Thu, 11/12/2015 - 19:29 | 6784434 herkomilchen
herkomilchen's picture

Not talking about middlemen or skimmers, talking about supply chain.  Any producer of any efficiency is specializing his labor.  That means he is relying on buying goods and services from many others as precursors to which he adds his own labor.

For example, the most efficient baker will buy flour to make his bread.  He will not grow his own wheat, build his own tractor to harvest it, and hand grind it into flour just to be able to sell bread.  That would be wildly inefficient and his bread would cost $1,000 a loaf.

To capture the efficiency of being able to just buy flour and have the flour producer buy his grain from a granary who buys it from a farmer who pays his water bill, etc., we need money that can effectively flow back through this I, Pencil supply network.  Well, everyone in that network needs to get paid.  The minute one of them needs fiat instead of gold, we're back to that exchange rate mattering.

Thu, 11/12/2015 - 20:57 | 6784722 VWAndy
VWAndy's picture

 Talk to the owner not the worker.

Wed, 11/11/2015 - 15:50 | 6778443 kumquatsunite
kumquatsunite's picture

We put a gold coin on the plate last night and tried to eat it...didn't taste good at all!

Don't like it, won't buy any, real investments are the best not something you put in the ground and "watch."

Thu, 11/12/2015 - 04:53 | 6781027 scintillator9
Wed, 11/11/2015 - 17:18 | 6778895 kiwimail
kiwimail's picture

And how did the side salad of shredded greenbacks taste?

Wed, 11/11/2015 - 15:39 | 6778379 TheBeatles
Wed, 11/11/2015 - 23:39 | 6780467 Buster Cherry
Buster Cherry's picture

Your wife really enjoyed the tonsil glazing I gave her after you left for work.

Wed, 11/11/2015 - 18:08 | 6779108 markj113
markj113's picture

Eurgold is a scam company.

 

Please check the scam accusation thread on bitcointalk

Wed, 11/11/2015 - 16:09 | 6778559 HenryHall
HenryHall's picture
Special Report - How to Avoid Fake Silver & Counterfeit Gold Products

http://goldsilver.com/video/special-report-how-to-avoid-fake-silver-and-...

Wed, 11/11/2015 - 15:37 | 6778370 KingTut
KingTut's picture

Comparing gold to the commodities index in not quite right.  The explosive growth in credit over the last 20 years led to demand for cheap products, which led to China's explosive growth, which led to enormous expansion of raw materials (commodities) production.  The chinese consumed everything for awhile, but we now can see that was completely unsustainable.

In addition commodities are measured in FLOW, whereas gold is measured in STOCK.  The flow of commdities rose hugely and has shrunk hugely.  But the stock of gold cannot change very much, which will lead to swings in the comparison chart.  The gold price can change more than it should because its based not on the STOCK of gold, but on a FLOW of paper contracts. 

We are now faced with massive worldwide deflation, as we unwind mal-investment, over capacity, and too much debt. Unfortunately, the 'experts' running the montary machinery will attempt to cure the effects of deflation with exponentially more cheap money.  That is, cheap money is the cure for cheap money (NOT).  So the collapse of commodites will force an expansion in the credit bubble, which was the problem in the first place.  That's a positive feedback loop that can only end in exponential credit creation = hyperinflation.  I don't think I have to say that's exactly when you need to protect yourself with gold.

In this case, the fundamentals trump the technicals.

 

Wed, 11/11/2015 - 16:34 | 6778662 InnVestuhrr
InnVestuhrr's picture

"That's a positive feedback loop that can only end in exponential credit creation = hyperinflation"

This is the core fallacy of the gold religion. There cannot be a hyperinflation transition in the developed countries because the economies cannot run hot enough to drive wages up and there will be a glut of products, not shortages.

In fact, the developed countries will be going into recession, and there will be large amounts of excess labor, wages will stagnate and even fall for no-skill and low-skill jobs, AND:
1. there will be a glut of goods coming from China at ever lower and liquidation prices, as the Chinese continue to devalue their currency and do everything possible to keep their huge demanding population from rebelling
2. there will be large numbers of defaults across the economy, including:
    a.  the huge glut of automobile loans, at record high car purchase costs and
         7 to 15 year-long loans with record high monthly payments
    b. the massive amount of student debt and record high youth unemployment
    c. the record high amount of corporate debt, especially that used for LBOs, stock
       buybacks and paying generous dividends to keep stock prices and bonuses up,
       and the glut of high-yield bonds, especially in the oil and gas industry
3. 
real estate of all kinds - single-family due to layoffs, multi-family and commercial
     due to over-building and over-leveraging during the era of free money - so
     real estate prices are going to fall again
4. There cannot be "
exponential credit creation" in the private economy because the private economy is maxed out on debt.

I could go on, and on about these financial and economic realities, but the inescapable irrefutable conclusion is that the developed countries will absolutely NOT suffer hyperinflation - prepare for deflation instead.

Thu, 11/12/2015 - 13:07 | 6782556 KingTut
KingTut's picture

So we agree then on the fact that a global deflationary collapse appears inevitable.  The issue is not about that, but what the "authorities" do in reaction to that.  The US is committed to doing whatever it takes to preserve reserve status of the dollar.  The Fed has told us they will fight deflation at all costs. Every country in the world will defend its currency through debasement by credit creation.

 I'm not suggesting these efforts will be successful in the sense they make the economy better, only that they will succeed in drowning nominal the deflation with epic inflation of the money supply. The reality measured in real people's lives will still feel like collapse.  

You seem to be saying they cannot be successful in overwhelming a serious deflation with money 'printing'.  I'm saying they can print any amount of money, and will.  When the US does that, the world must follow.  Hyperfinaltion is not really inflation at all, it is the deliberate total destruction of the currency instead of paying debts.  Jubilee by imolation, if you will.

Wed, 11/11/2015 - 16:53 | 6778771 ToSoft4Truth
ToSoft4Truth's picture

One could say the controlled ‘Hyperinflation’ already occurred over the last 100 years.

That’s why:

Median and Average Sales Prices of New Homes Sold in United States

Time        Median         Average
Jan 1963        $17,200        (NA)
Jan 2015        $292,000    $356,000

Wed, 11/11/2015 - 18:33 | 6779191 InnVestuhrr
InnVestuhrr's picture

Financial asset bubbles are not the too-much-predicted, never-coming economy-wide hyper-inflation that the gold dreamers imagined would drive up the price of gold. When the inevitable next financial-asset bubble and debt-binge crash comes, then gold will surge as a result of flight to safe havens, but so will treasuries, however treasuries pay interest and have very low transaction latencies and costs and zero keeping cost.

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