9 Exciting <b>Gold</b> And Money <b>Charts</b> | <b>Gold</b> Silver Worlds |
| 9 Exciting <b>Gold</b> And Money <b>Charts</b> | <b>Gold</b> Silver Worlds Posted: 06 Apr 2014 07:52 AM PDT In his latest monthly editorial, writer and researcher Peter de Graaf has pulled several charts together which show the status of the gold market. Apart from a positive seasonal influence, the fundamentals still point to strength in gold. The "fundamenals" in this context are basically the relative strength of precious metals compared to other finanical assets, in particular money (as reflected in the monetary base on the US Fed balance sheet) and stocks. The author adds some basic technical analysis to his article. Both short and long term, gold seems well positioned (the mid long term, though, is not explicitly elaborated). Historically the month of March is not very 'gold-friendly'. April and May are more conducive to providing a rally. The first chart is courtesy Seasonalcharts.com. The March pullback came on schedule and appears ready to turn into a rally. The next chart shows the number of US dollars that are currently circulating (courtesy Mark J. Lundeen). The number is over 1 trillion dollars, and rising exponentially. This is in addition to the trillions of dollars in digital form, which make up the money supply. This next chart shows the US Monetary Base, which continues to rise exponentially. The two tiny 'blips' in 2000 and 2001 represent the large amounts of money shoveled into the system by Mr. Greenspan to keep the system afloat. The amount of money that is added at this time is mind boggling. During the last 30 day period the base increased by 80 billion dollars. No 'tapering' here. While not all of this money will find its way into gold and silver, some of it will, and as the rally that began on December 31st picks up steam, more and more of this liquidity is expected to move into the precious metals sector.
The following chart compares gold to the US monetary base. The interpretation is that gold is cheaper than at any time during the past 100 years! The current reading is 0.4! When it climbs back to the 4.0 zone; that would imply a gold price 10 times higher than today. Chart courtesy: Macrotrends.net. The chart below confirms the fact that gold is very cheap at this moment. Mr. Lundeen compares the current gold price to the purchasing power of a dollar in 1920. He calculates that gold needs to rise to $8750 in today's dollars to return to what it was worth in 1920. This sets the stage for a continuation of the current gold bull market. The following chart shows the energy that is being provided by the US FED (by way of money printing), benefiting both the S&P (red line), and gold (black line). The gold price was pushed out of this relationship when huge numbers of contracts for paper gold were executed at the COMEX in mid-April 2013. On Friday April 12th 2013 at the opening of trading at the COMEX, 3.4 million ounces of gold contracts were dumped in the June contract. On Monday April 15th, another 10 million ounces hit the tape. The amount of gold (in the form of contracts) that was dumped over the two-day period represented 15% of total world gold production. Meanwhile, to fill demand from China, hundreds of tonnes of physical gold were released by the Bank of England, while a large amount of gold was pried away from GLD the gold ETF, in response to rising demand from Asian countries. Chinese and Indian people love bargains! That gold is now gone! It cannot be sold again! This has created a situation where, like a rubber band, the gold price is expected to snap back into the previous alignment. Featured below is the daily gold chart. Price broke out at the 200DMA (red line) in February and since meeting with resistance at $1400, a test of the breakout has been underway. The supporting indicators (green lines), are providing hints that support is available here. A breakout at the black arrow will tell us that a bottom may well have been carved out. The green arrow points to a 'golden cross', with the 50DMA moving into positive alignment with the 200DMA. Featured below is the index that compares gold to the S&P 500 index. In late 2011 this index became temporarily tilted in favor of gold. The reversal of direction that came about as gold dropped in price while the S&P 500 rose to new highs, appears to be ready to change direction again. Confirmation will come about when price breaks out at the blue arrow. The three supporting indicators (green lines) are ready to turn up. This last chart compares the price of gold to the US long bond. The blue line is the 400 week moving average. Up until 2003 it made sense to own bonds and not gold. The green arrow points to the moment when gold took charge. Since then gold has outperformed bonds. In 2011 gold had moved up a bit 'too far too fast' and a pullback in the relationship caused this index to return to the 400WMA, where it is finding support. A breakout at the blue arrow will cause many people to become interested in gold, and bond money is expected to flow into the gold sector, as the eleven year old trend picks up steam.
About the author: Peter Degraaf is an online stock trader with over 50 years of investing experience. He publishes a daily market letter. For a sample copy please visit www.pdegraaf.com. Courtesy of the excellent website Nowandfutures.com for the Greenspan quotes used in this article.  |
| <b>Gold</b>: More Than A Real Store Of Value - Recent Evidence [ETFS <b>...</b> Posted: 31 Mar 2014 11:35 AM PDT Summary
I often like Barry Ritholtz's thinking. A March 28, 2014 article in Bloomberg on the long term real price of gold however, needs re-framing in a global context. Since Roy Jastram published his deservedly esteemed "The Golden Constant", gold has been viewed as a (constant) store of real value. A wealth of statistics presented by Jastram seemed to show this. An update of some of his analysis in a LBMA article by Jill Leyland has this graph: In his article, Barry Ritholtz presents a graph from Catherine Mulbrandon of Visualizing Economics: This chart includes the market price of gold as well as the U.S. government pegged price. Sure enough, the real gold price seems to be going nowhere in the long run; a store of value. In this SA article, I have argued that gold in fact is more than a store of value; it earns a real yield and thus gains in world purchasing power in terms of goods and services per unit. Rather than use my data, I thought I would show some relevant and interesting findings from others. A recent BusinessInsider article has this chart from Ian Bremmer of Eurasia Group showing national shares of world GDP: (click to enlarge) Now, let's consider the implications of a quintupling share of U.S. world GDP over the period of time when the USD real price of gold remained constant. The two main world economic powers were the United Kingdom and the U.S. The USD purchasing power in terms of pounds sterling remained fairly constant since 1820 before nearly tripling since the early 1900's. The purchasing power of the dollar moved much higher against other world currencies, however. Further evidence of this comes from a graph in Barsky-Summers' seminal 1988 paper on the Gold Standard Gibson's Paradox "Gibson's Paradox and the Gold Standard". Their chart of the world price index during this time is declining. Since most of the world in terms of GDP was on a fixed gold standard, the price is in terms of gold - meaning, that the purchasing power of gold in real terms, against a basket of world goods and services - rose. (click to enlarge) The inescapable conclusion is that a constant real USD gold price actually gained in world real purchasing power. Jastram and other analysts fell into the mindset of viewing gold through pricing in the two strongest currencies of the time - not in terms of world purchasing power which is what matters for an asset traded in a world market. I made precisely this critique of the gold-as-a-store-of-value belief in my eBook showing how gold is actually valued. Investment Considerations Contrary to World Gold Council research, store of value graphs and popular belief based on statistics showing the price of gold in dollars, gold obtains an increasing global real yield and return. In the long run, a unit of gold will earn in real terms exactly what other long term investments return including stocks and long bonds. The logic, match and evidence for this is beyond the scope of this brief article but is more fully discussed in the referenced book and a number of journal publications. Disclosure: I am long DUST. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Want more from this author? Follow and be the first to know when they publish.  (52 followers)
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