CHART: <b>Gold price</b> vs rates shows rally catalyst 'already in place <b>...</b> |
- CHART: <b>Gold price</b> vs rates shows rally catalyst 'already in place <b>...</b>
- <b>Gold Price</b> Key Fundamental Driver :: The Market Oracle :: Financial <b>...</b>
- <b>Gold Price</b> Lost a Nothing 90 Cents Today to Close at $1252.10
| CHART: <b>Gold price</b> vs rates shows rally catalyst 'already in place <b>...</b> Posted: 03 Jun 2014 12:46 PM PDT A number of gold market analysts have made the case that the one major factor influencing the price of gold is US inflation-adjusted interest rates and that the correlation is so strong that the gold price can be used as a predictor of rates, serving as an early warning system on both the direction and magnitude of moves. The underlying reason for the relationship is that as yields rise, the opportunity costs of holding gold increases because the metal is not income producing. Higher rates also boost the value of the dollar which usually move in the opposite direction of the gold price. Recently though this inverse correlation is between US 10-year real yields (Treasury Inflation Protected Securities or TIPS) and the price of gold has broken down. The 10-year TIPS is currently at 0.32% (which is consistent with a gold price north of $1,400), down from 0.68% two months ago. In a new research note Julian Jessop Head of Commodities Research at Capital Economics says this is a bullish sign for the gold price: "This decline at least partly reflects growing speculation that the neutral level for official interest rates in the longer term has fallen, which should reduce the opportunity cost of holding gold," says Jessop. The independent macro-economic research house notes based on the decoupling evident on this graph "there is already a catalyst in place for a near-term rally in the price of the precious metal". While US rates have not risen as expected, Europe's central bank is on the verge of moving rates below zero and may launch a full-blown quantitative easing program later this year and Japan is likely to extend its asset purchases through 2015. "Unless there is a decisive move below $1,200 per ounce, which seems unlikely given the (rising) floor set by mining costs, we are therefore retaining our end-2014 forecast of $1,450," the report concludes.  Source: Capital Economics  | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| <b>Gold Price</b> Key Fundamental Driver :: The Market Oracle :: Financial <b>...</b> Posted: 06 Jun 2014 05:29 AM PDT
By: Jordan_Roy_Byrne
Despite having spilled tons of ink on the subject, Ritholtz has continually failed to mention the major driver of Gold which is the direction of real interest rates. Ironically, Ritholtz often writes about following the data and avoiding narratives, yet he ignores this when discussing the yellow metal. Gold rises when real interest rates are negative or declining sharply. Its simple to understand. If investors and fund managers can earn a real rate of return on a money market fund, CD, or bond then there is no need for an alternative currency. If you can't earn a real rate of return safely then you'll seek alternative currencies such as Gold and Silver. The following chart from Nick Laird shows real rates and Gold over the last 80 years.
The venerable Ned Davis Research, as reported in Barrons yesterday noted that real interest rates recently have turned favorable for Gold. That is probably why they concluded that the bull is alive but wounded. Capital Economics, as reported by Frank Els also notes in a report that the real yields have declined. I happen to agree with NDR's view that the short-term technical situation is not conducive to speculative positions. Last week we wrote that Gold could fall to $1080 before the bear ends. A weekly close below $1200 would likely trigger that final washout. Ritholtz's arguments for the end of Gold's secular bull are surprisingly weak. Of course none revolve around the end to negative real rates. He cites a chart and some commentary which regards the dollar rebound as potentially an epic squeeze. This Business Insider style observation bears no reality. The US Dollar index is up less than 2 points in the last month and the commitment of traders report does not show a huge speculative short interest conducive to a short squeeze. Ironically, the epic squeeze is likely to come in Silver and on a lesser scale Gold. Gross short positions in Silver reached a new all time high last week. Further weakness in both metals could setup a large short squeeze in the coming months. By now you know that Ritholtz's conclusion (the bullish factors from 2001-2011 are gone) is incomplete and irrelevant. His five points help explain the bear market in Gold but none of them reveal anything about an end to negative real rates, which is the key driving force. If one wants to make a case that the secular bull is over then they need to make the case that real rates have bottomed and will rise indefinitely. This is what happened following 1951 (commodity peak with gold price fixed) and 1980. With the latest uptick in inflation and decline in yields, real rates are again negative and trending favorably for Gold. Statistically speaking inflation has almost no downside and has in fact started to trend higher. Core inflation in the OECD countries is at an 18 month high while inflation in Canada is at a two year high. The CPI and PCE in the US have started to tick up. MIT's Billion Prices Project which has led the CPI at key turning points since 2009 has accelerated higher since December 2013. This implies the CPI has further upside. With regard to rates, we know that each 1% rise in rates equates to an additional ~$180 Billion in interest costs. That is over 6% of FY 2013 federal revenue. Policy makers want but more importantly need inflation to get the debt burden under control. Real rates were strongly negative for much of 1942 to 1949. Inflation surged while real growth stagnated but we got the debt burden under control. It led to a tremendous uninterrupted equity advance from 1949 to 1956. However, that was after a rip roaring advance in hard assets. Hopefully this missive cut through both the bull and bear BS on Gold. Gold bugs will shamelessly promote anything as bullish while gold bears will mention anything but the only fundamental that matters, negative real interest rates. The historical bear analogs, sentiment and negative real rates argue that the precious metals complex is nearing the conclusion to a cyclical bear market within a secular bull. If you've followed my work you will know that I have been bearish since the hard reversal in March. Patience and discipline will be the name of the game over the coming weeks. Discipline is required to exit hedges at the right time while patience is required to buy as low as possible. I am looking at JNUG (3x long GDXJ) as well as several juniors I believe have exceedingly strong upside potential over the coming quarters and years. If you'd be interested in professional guidance in this endeavor, then we invite you to learn more about our service. Good Luck! Email: Jordan@TheDailyGold.com Service Link: http://thedailygold.com/premium Bio: Jordan Roy-Byrne, CMT is a Chartered Market Technician, a member of the Market Technicians Association and from 2010-2014 an official contributor to the CME Group, the largest futures exchange in the world. He is the publisher and editor of TheDailyGold Premium, a publication which emphaszies market timing and stock selection for the sophisticated investor. Jordan's work has been featured in CNBC, Barrons, Financial Times Alphaville, and his editorials are regularly published in 321gold, Gold-Eagle, FinancialSense, GoldSeek, Kitco and Yahoo Finance. He is quoted regularly in Barrons. Jordan was a speaker at PDAC 2012, the largest mining conference in the world. © 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| <b>Gold Price</b> Lost a Nothing 90 Cents Today to Close at $1252.10 Posted: 06 Jun 2014 05:14 PM PDT
The GOLD PRICE lost a nothing 90 cents today to close at $1,252.10, but it's above $1,250. Way up above at $1,275 stands the 20 day moving average, first milestone that will prove gold has turned its face skyward. Really the gold price needs to rise above $1,280 where it broke down. $1,295 and the 200 dma would be better still. The RSI shows the gold price rising up from a severely oversold condition. Full stochastics have been as oversold as they've been in the last 12 years. MACD is trying to turn up. But all this must be confirmed by the only indicator that counts: higher price. The SILVER PRICE dropped 9.2 cents to 1896.3c, but traded most of the say above 1900c. As with gold price is the only indicator that counts in the end. For silver, that means climbing above 1950c, then over 2050c. Both silver and GOLD PRICES seasonally post lows in June-July, so we might see one spike move down. Everything is in place, however, for a reversal -- they just haven't reversed yet. If I told y'all that silver rose more than the Dow or the S&P500 last week, y'all would tell me I was lying and throw a pop bottle at my head, but just you look. Silver rose 1.7% this week but the Dow only rose a piddling 1.2% and the S&P500 rose 1.3%. Those are just the numbers. Gold rose 1/2% while the US dollar index stayed plumb pancake flat, didn't move ne'er a hair. Platinum rose only 30 cents. I reckon it makes a difference who writes the headlines. Which reminds me, who gets to pick the news? Did y'all notice that whatever some lamebrain in New York or Washington says is news is what they spotlight? Obama Administration is good at this, floating a new crisis every week as "news" when actually it's either "olds" or just their agenda. But the news from the yankee government was good today for Wall Street, the unemployment is steady and jobs have grown by over 200,000 a month for the last three months. Now if you all have never heard SHAMELESS LYING before you heard it from this lying report. I'm just a nacheral born fool from Tennessee, but I know to go to the St. Louis Fed's database Fred and look up Civilian Labor Force Participation and see that it's now at 62.9%, against a high in July 1997 (right, 17 years ago) of 68.1%. 62.9 is itself a level not seen since May 1978. Then I went and read what John Williams of www.shadowstats.com had to say. John is an expert in unravelling their statistical lies, and he says unemployment is closer to 23% and the gimmicks the Bureau of Labor Statistics uses overstate job growth by 200,000 a month. But welcome to America, where the truth don't count, only the illusion of an economy. Stocks rose again to new highs, the eighth out of the last 10 days for the S&P500. It rose 8.98 (0.46%) to 1,949.44. Dow rose 88.17 90.52%) to 16,924.28. Both have now poked through overhead resistance lines. They could break down here -- new highs on 8/10 days is not a sequence nature encourages -- or they could go wilder still, although both have reached overbought territory. But overbought can get overboughter still. The end lieth not far away. About now it's getting time to sell stocks and put the proceeds into silver and gold. The Dow in Gold today rose 0.59% to end at 13.51 oz (G$279.28 gold dollars), a new high for the move since March, but not nearly the high for the move, which remains 13.80 oz (G$285.27) last December. It's likely forming a double top here, but that has to be confirmed by a reversal. Dow in Silver gained 0.66% to end at 890.75 oz (S$1,151.35). It has bounced off its upper resistance line this week, but needs to drop through the 20 DMA (866.37 oz) to confirm a reversal. I don't expect it can get higher than 912 oz (S$1,179.15), and may have already turned. Wasn't a shining week for the US dollar index. Yesterday's announcement from the criminals at the ECB sent the dollar up first to 81.07, then it collapsed all the way to 80.39 Today it ended where it began the week, at 80.43, just above the 20 DMA at 80.31, but below the 200 DMA at 80.48. Has the dollar aborted its uptrend? I don't know, but watch 80.20, even 80.05, the 50 DMA. It ought to hold those if it aims to rise. Euro collapsed from 1.3993 in early may all the way to $1.3503 when it bounced back yesterday. Today it lost 0.13% to $1.3645. The enthusiasm spawned by the ECB's announcement it would inflate the snot out of the euro will wear off in two weeks at most, and it will commence sinking again. The yen continues to slide sideways, losing 0.11% today to 97.55, below all its moving averages. Yet the yen abideth still in the same range it hath inhabited since 2014 began, from 94.83 to 99.24. Nothing happening here. The 10 year treasury yield in the last week has been working to undo its breakdown in early May. Remember that suppressing interest rates is the key to the central banks' house of cards. Once the market takes control and starts raising rates, the central banks are cooked. Watch thos einterest rates for the first sign of trouble. On 6 June 1934 US President Franklin Roosevelt signed the Securities Exchange Act establishing the Securities and Exchange Commission so that wholesale fraud upon the American public could be supervised by government authorities. Next week I will be travelling so won't publish commentaries any day but Monday, unless I just have time and take a notion. Y'all enjoy your weekend! Aurum et argentum comparenda sunt -- -- Gold and silver must be bought. - Franklin Sanders, The Moneychanger © 2014, The Moneychanger. May not be republished in any form, including electronically, without our express permission. To avoid confusion, please remember that the comments above have a very short time horizon. Always invest with the primary trend. Gold's primary trend is up, targeting at least $3,130.00; silver's primary is up targeting 16:1 gold/silver ratio or $195.66; stocks' primary trend is down, targeting Dow under 2,900 and worth only one ounce of gold or 18 ounces of silver. or 18 ounces of silver. US $ and US$-denominated assets, primary trend down; real estate bubble has burst, primary trend down. WARNING AND DISCLAIMER. Be advised and warned: Do NOT use these commentaries to trade futures contracts. I don't intend them for that or write them with that short term trading outlook. I write them for long-term investors in physical metals. Take them as entertainment, but not as a timing service for futures. NOR do I recommend investing in gold or silver Exchange Trade Funds (ETFs). Those are NOT physical metal and I fear one day one or another may go up in smoke. Unless you can breathe smoke, stay away. Call me paranoid, but the surviving rabbit is wary of traps. NOR do I recommend trading futures options or other leveraged paper gold and silver products. These are not for the inexperienced. NOR do I recommend buying gold and silver on margin or with debt. What DO I recommend? Physical gold and silver coins and bars in your own hands. One final warning: NEVER insert a 747 Jumbo Jet up your nose. |
Barry Ritholtz is out with another article spelling more doom for the precious metals sector and the gold bugs. The self proclaimed "Gold Agnostic" penned a 2500 word missive in January which followed a blog post amid the spring 2013 collapse titled 
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