Mish

Gold broke out of a six year consolidation. Things look up in 2020.

Gold Monthly Chart 2004-Present

Gold Monthly Chart 2010-Present

Smart Money Shorts

I ignore short-term COT "smart money" warnings although I would prefer there to be fewer bulls.

For discussion of "smart money", please see Investigating Alleged Smart Money Positions in Gold.

Pater Tenebrarum at the Acting Man blog pinged me with this idea: The only caveat remains the large net speculative long position, but at the moment this strikes me almost as a "bear hook" that is keeping people on the sidelines waiting for the "inevitable" pullback while the train is leaving the station.

With the 6-year consolidation over, there is every reason fundamentally and technically for gold to continue up.

So, be my guest if you want to time gold to COT positions.

Technically Speaking

Technically, there is short-term monthly resistance between here and $1566. Perhaps there's a pullback now, but with technical and fundamentals otherwise aligned why bet on it?

The next technical resistance area is the $1700 to $1800 area so any move above $1566 is likely to be a fast, strong one, perhaps with a retest of the $1566 area from above that.

Gold Fundamentals

Gold fundamentals are in excellent shape as I noted in How Does Gold React to Interest Rate Policy?

Much of the alleged "fundamentals" are noise, not fundamental price factors.

Not Fundamentally Important

  • Mine supply
  • Central Bank Buying
  • ETF analysis
  • The ever popular jewelry buying in India discussion

Aso, gold does not follow the dollar except superficially and in short-term time frames.

Gold vs the Dollar

Many people believe gold reacts primarily to changes in the US dollar.

Last week, I rebutted than notion in Gold's vs the US Dollar: Correlation Is Not What Most Think.

True Supply of Gold and Reservation Demand

It is important to note that nearly every ounce of gold ever mined is still in existence. A small fraction of that mined gold has been lost, and other small fractions sit in priceless statues in museums etc., and is thus not available for sale.

Otherwise, someone has to hold every ounce of gold ever mined, 100% of the time. That is the true supply. Jewelry buying and mine output are insignificant in comparison. We are not about to run out of gold as some gold shills suggest.

Mises refers to the desire to hold gold as "Reservation Demand", that is the desire of people to hold their gold coins, bullion, bars, and jewelry rather than trading it for something else.

If we strike out jewelry buying, central bank buying, the dollar, and mine supply, what then determines "Reservation Demand" to own gold vs some other asset?

Faith in Central Banks

Talk of normalization was nonsense, as were various "Dot Plots" that suggested the Fed was on a major hiking cycle.

For an amusing chart of where the Fed projected interest rates would be in 2020, please see Dot Plot Fantasyland Projections.

The market did not believe the Fed, neither did I, and neither did gold.

Once again we are back to my central gold theme question.

Is everything under control or not?

Mike "Mish" Shedlock

Comments (65)
No. 1-21
Scooot
Scooot

So far there hasn't been any major event that's triggered a surge in the price of Gold, only the whiff of inevitability. The Dow to Gold Ratio is still historically high at about 18.75, and the way the prices are moving that ratio doesn't look as if its going to widen any more, even if the Dow continues to edge up.

Bam_Man
Bam_Man

The Gold price has lately been highly correlated to the amount of Sovereign Debt trading at negative yield-to-maturity.

Given the hopeless state of government finances throughout most of the developed world, this figure can only be expected to grow indefinitely (until complete failure of the current debt-based, fiat monetary system occurs) and the price of Gold along with it.

fehro
fehro

Any thoughts on the Euro's demise? have you seen DB and CRZBY vs GS from 2008? Euro breaks due to any number of reasons, DB, German Elections, Italian Banks/bonds.. etc.. USD will fly, and possibly go parabolic as it looses it's reserve status, probably to Chinese Crypto coin backed by the BOC.. then gold will see $700 to $450 imo in USD, not in other currencies. Crazy thoughts?

DXY 2-3yr bull flag calls for +25%

Rvrider
Rvrider

I wonder whether the futures market based spot mechanism will significantly diverge from the physical market (30-50% premiums). If so, what would the bankers and their puppet governments do in response?

CautiousObserver
CautiousObserver

Is it just me, or did the Fed term repo operation stop expanding on 12/30/2019? Unless there is another operation ongoing that I am missing, the repos are just rolling over from now until 1/16/2020, at which point they start unwinding. Also, there is a pretty big divergence between bond prices and gold prices for the last month (bond price going down while gold price going up). What am I missing that causes so many people believe the Fed is providing ongoing support for the market until at least the end of Q1, 2020? Anyone have comments about this situation?

Realist
Realist

Trying to “guess” what the price of any asset or investment will be is a crap shoot. That’s why I diversify in a variety of investments or asset classes and occasionally rebalance things. Even worse than guessing, is thinking you somehow “know” what the price will be, and then making big bets on this “knowledge”. It is interesting that fehro thinks the price will drop to 711 or 450, while others think it is going sky high.

JohnH
JohnH

I subscribe to Ed Steer's Gold and Silver Digest, he wrote this in his newsletter yesterday:

"the current record and unprecedented Managed Money long position vs. the record short position of the Big 8 traders…sans JPMorgan… still has to be resolved one way or another. Either it’s the same old, same old engineered price declines in silver and gold that we’re all too familiar with…or some of the smaller traders in the Big 8 category rush to cover and book big loses for the very first time. This thought should be front and center in your mind.

They certainly are in mine.

I mentioned about six months ago that it was my opinion that this precious metals price management scheme would end by the start of the new year and decade. That has obviously not come to pass. But with the DoJ [amongst others] continuing to breath down everyone’s necks over at JPMorgan, one would think that this event should occur in the not-to-distant future.

And as Ted has also pointed out on too many occasions to count, JPMorgan’s short positions in both gold and silver are about the lowest they’ve ever been — and that’s in the face of the record high commercial net short position in gold — and close to a new record high Commercial net short position in silver.

And with at least 25 million ounces of gold — and 900+ million troy ounces of silver squirreled away in various and sundry depositories in the U.S. and in the U.K…the potential for a double cross of the other Big 7 short holders [and every other short holder in the COMEX futures market] by JPMorgan, still looms large. But whether or not they’ll pull the trigger, remains to be seen."

KidHorn
KidHorn

The fundamentals for gold have been positive for decades. The problem is the way to make money is to guess what the idiot investors will chase after in the future and people are generally too dumb to buy gold.

Mish
Mish

Editor

"Either it’s the same old, same old engineered price declines in silver and gold that we’re all too familiar with…or some of the smaller traders in the Big 8 category rush to cover and book big losses for the very first time. This thought should be front and center in your mind."

That is mostly nonsense The shorts are almost entirely hedged. They have to be or they would have blown up being short the entire way from $250 to $1900. Same with silver from $6 to $40.

I suppose there are times when books become a bit unbalanced and/or they manipulate the market for small gains, but they are unquestionably hedged.

The idea that they will suffer huge losses if gold keeps rising is bullshit. So is the notion they will be "forced" to cover if it does.

Pure nonsense that gets repeated over and over and over.

Captain Ahab
Captain Ahab

I've never been a fan of drawing lines on charts and claiming that the past predicts the future. The same is true of past price movements limiting the movement of future prices within a band, UNLESS the fundamentals are unchanged.

That said, I suspect most readers would agree that the global economy is currently slowing down--the fundamentals are changing. Most readers would also agree that central banks are doing what ever they can to slow the decline, and in the process, creating a bubble in most financial/real property assets. There might be less agreement that the bubble is greatly exacerbated by yields/interest rates close to zero (not 5-6% as in 2007-8). Near zero, downward movement of yields/interest rates is increasingly constrained. Upward movement is increasingly likely--born out by statistics, history, and human behavior.

IMHO, global markets are primed to fail, massively and collectively. All it will take is a precipitating event. The only recourse is printing money.

Brexitologist
Brexitologist

Folks... in order to find out the effective market price of an ounce of physical gold we´ll have to wait till EU member states realize that the hundreds of metric tons of bullion they thought they owned while vaulted in custody at the Bank of England for many decades actually is not available for repatriation right now no matter how many times her Royal Majesty visits the Old Lady of Threadneedle Street simply because it has been either sold with the idea of re-purchasing at a lower price (Gordon Brown´s strategy) in what became a "fractional custody system" of sorts... or lent out, swapped, re-re-re-hypothecated, or encumbered to many claimees now waiting in line ... and then and only THEN.... the real golden showtime will start no matter what happens to the Euro or the US dollar or derivatives or the future and options market , or the Comex, or anything else coffee included so help us God (and gold)

Harry-Ireland
Harry-Ireland

I never pay attention to those ridiculous priceforecasts of $10.000/oz. Because of course goldshills or the silverpushers will repeat this over and over and over. This latest outbreak however is significant of course, but I'm not convinced there couldn't be a pullback within 9 months either. Everything is in a bubble, literally everything, including gold. That shouldn't be left out of the equation. Gold is unique and everyone should have some, without a doubt. And if geopolitical tensions should result in a war, who knows if the resistancelevels will be redefined. And everything is NOT awesome as we'll find out before the year is over.

Escierto
Escierto

The future for gold looked bright until Trump got elected in 2016. Most gold bugs probably voted for him but his policies have done nothing for gold. Until the end of his second term in 2024 gold will continue to flounder regardless of what else is happening. The gigantic US budget deficits will not matter so long as he is in office. After that, the deluge.

stillCJ
stillCJ

Editor

Recent events in the Middle East are guaranteed to raise gold prices. It's as if the mullahs are long GLD.

MorrisWR
MorrisWR

I am expecting another push to $1600 or so and then one more push lower. I never trade on fundamentals but only technical analysis. However, we all know that thoughts differ on outcomes using either or both. I still hold some gold and silver so a higher push would be fine with me. I am planning on adding if my outlook is correct.

Brexitologist
Brexitologist

..."... the primary purpose of futures options and forwards is to expand artificial supply to keep the price from rising. In a wider context, the ability to print synthetic commodities out of thin air is a means of suppressing prices generally and we must not be distracted by claims that derivatives improve liquidity. They improve liquidity only at lower prices..."...

... "Not only are there other regulated derivative exchanges with gold contracts, but also there are unregulated over-the-counter markets. According to the Bank for International Settlements from end-2015 unregulated OTC contracts (principally London forward contracts) expanded by the equivalent of 2,450 tonnes by last June, taken at contemporary prices. And we must not forget the unknown quantity of bank liabilities to customers' unallocated accounts, which probably involve an additional few thousand tonnes..."...

"In recent months, the paper suppression regime has stepped up a gear, evidenced by Comex's open interest rising... "The rising gold price has seen increasing paper supply, which we would expect from a market designed to keep a lid on prices.

werner1
werner1

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JohnMc
JohnMc

In what form would you recommend we hold gold?


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