<b>Gold Price</b> Holding Up Well But Next Catalyst Unclear | Gold Silver <b>...</b> |
| <b>Gold Price</b> Holding Up Well But Next Catalyst Unclear | Gold Silver <b>...</b> Posted: 10 Apr 2014 01:51 PM PDT Gold has shown strength in today's trading session. Last week, the yellow metal was trading near $1280, a huge support zone and key inflection point which has held very well. Now, it seems that $1300 is holding as well, a sign of strength, at least short term. Dan Norcini discusses the technical picture in more detail. He explains the current state of the gold price based on the charts and his expectations going forward. Yesterday's FOMC minutes continue to put pressure on the US Dollar, but even more importantly, acted to depress US interest rates. That is the key driver for gold in my view at this time. Gold seems to struggle when interest rates here in the US rise as investors see little threat of inflation and seek out assets that will throw off some sort of yield rather than the yellow metal which only provides gains if it continues to rise in price. In a benign inflation environment, many do not believe gold will continue to rise. From a chart perspective, gold continues to remain within the broad trading range outlined for some time now. It will need a catalyst of some sort to kick it higher or send it lower. What that might be remains unclear to me. The chart shows that gold has run into some selling near the resistance level noted near the $1320 region. Above that, resistance is layered in approximately $20 increments, first near $1340 and then again near $1360. Downside support comes in near and just above $1300 followed by our old friend near $1280. On the ADX, which indicates a trendless market, the bulls have regained the short term advantage. Stochastics are rising as price moves up in the range showing the near term friendly picture. How this market handles this $1320 level today and tomorrow, will be a key as to how to approach it. The trading range is pretty broad (up near $1400 on the top and $1280 on the bottom). I cannot see what would cause this market to break out of its current range at this time. The Dollar would either have to drop off sharply breaking down below 79 on the USDX or interest rates would have to plummet sharply here in the US, along with perhaps a larger selloff in the broader equity markets to take it up out of the top end of the range. On the downside, we would need to see a sharp rally higher in the US Dollar and a surge in interest rates above the 3% level in the Ten Year to take it down below $1280 in my view. Take a look at Eurogold. Notice how it too is essentially rangebound. The ADX reveals the lack of a clearly defined trend. The top of the range is up near the 1000 euro region; the bottom down near 880 – 860. If gold could clear the 1000 euro level, we might finally have something to write about. If the ECB were to actually proceed with their chatter about their own version of QE and forcing banks to pay interest on reserves held there at the ECB, then we might finally see the Euro weaken sharply enough to send gold higher and through that 1000 level. Apparently Europe is having the same problems over there as we are over here – a lack of inflation and in their case, an excessively strong currency, which no one over there wants. The gold mining shares are providing little if any support to gold judging from their mediocre performance today. One gets the impression that they do not know whether to follow the broader market lower or the metal higher. Either way, it is not exactly a ringing endorsement of further strong gains in the actual metal.  |
| <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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