October 9, 2016
Gold has once again surprised. This time, news from “outside the market” set in motion a chain reaction that knocked gold for a loop.
First, the British confirmed the country was withdrawing from the European Union . . . and sooner than most had expected. This triggered an instant devaluation of the British pound and a corresponding rise in the U.S. dollar in world currency markets.
Not surprisingly, as the dollar rose, gold took it on the chin, as it most often does when the U.S. currency appreciates.
At the same time, contributing to the dollar’s recent appreciation has been a string of favorable U.S. economic statistics that, in turn, raised expectations the Fed might sooner rather than later raise short-term interest rates, perhaps even by yearend.
Once the dollar started its ascent, gold’s short-term fate was sealed . . . and its downward decline was further fueled by technical selling at key chart points, much of it computer driven, that is to say without any human intervention!
Now, most immediately, having shed some $75-to-$100 an ounce in a matter of days, we are seeing some technical support and bargain hunting as gold tests the $1250 level.
If this key chart point holds, as I think it will, gold could soon be on the upswing again. But if it can’t hold, watch out for another possible washout prompted by a further wave of technically-driven speculative selling that takes gold down another notch before a long-lasting upswing gets underway.
Giving us some comfort has been the observation that much of the recent selling has come from large-scale speculators operating in futures and forward dealer markets. Meanwhile, physical demand from retail investors and, most importantly, hedge funds and other large-scale institutional investors has remained firm.
Lately, as gold prices have dropped, these institutional players have added to their holdings via exchange-traded funds (ETFs). Gold ETFs now stand at over 2000 tons, near the highest level in over three years. I expect this market segment will continue to grow – especially as some fund managers seek bargains at recently depressed price levels.
Adding to my sanguine view of the recent price decline has been the absence in recent days of Chinese participation in the market – either as buyers or sellers. China is the world’s largest gold market – and ordinarily one might have expected the Chinese to easily absorb much of the gold sold this past week in the United States and European markets.
When Chinese investors return, at whatever price level, they’ll sense a bargain. And, their buying alone should be enough to stabilize the price and re-launch gold on its long-term upward trajectory.
September 22, 2016
I don’t like to make short-term predictions about the price of gold – people who do are usually very lucky or very wrong. But times they are changing . . . and we are entering a new phase in gold-price action where expectations of Fed interest-rate policy will become less important and other, more bullish, gold-price drivers come to the ...
August 24, 2016
I recently sat down with Mining.com to talk about gold and the outlook for the yellow metal. Here's a summary of that conversation: Jeffrey Nichols has been a precious metal economist for over 25 years, so if there’s someone who knows every nook and cranny of the gold market, that is him. Like many others, including American lawyer and author ...
August 22, 2016
Although the price of gold is up some 25 percent so far this year, the metal still remains 30 percent below its all-time high of $1,924 registered in September 2011 – so there’s still plenty of room overhead for the price of gold to move higher – as I think it will – without excessive resistance. I’m no gold bug – but I have been “super bullish” ...
July 23, 2016
Although gold prices have had some difficulty sustaining recent gains above the $1365 per ounce level, the metal has nevertheless registered just about the best performance across virtually all investment classes over the past six or seven months. Over the past half year, the metal has rallied some 25 to 30 percent – far better than the major ...
June 21, 2016
Whatever the outcome of this Thursday’s “Brexit” referendum on the United Kingdom’s future to stay in or to exit from the European Union, gold prices are set to move significantly higher during this year’s second half. Should the British reject devolution, gold prices might briefly move a little lower – even though, in the days running up to ...