Where Is Gold Heading?
Where is gold heading? Gold is going to new highs and there are three changes in the gold market that back this prediction up. We will take a look at last weeks action in gold and answer the question: Where is gold heading?
Gold is beginning to come into it’s own as the dollar continues on its decent to .72 and below. the question now becomes, where is gold heading? Clearly it is up, but it will not be in a straight line. There will be some serious tests of both the dollar and gold as we go forward. One thing is for sure, investors are beginning to take note of gold’s run.
I want to point out three articles that posted on Monday, Wednesday and Friday respectively, that show that interest is being taken in the gold markets. This is not to say that gold’s rise is becoming mainstream, but rather that even the networks that only tends to mention gold as overbought, or as a useless relic (if they even mention it at all) are now being forced to cover the story lest they be looked upon as what they are, leftist shills. CNN (The Communist News Network) is taking note of the change in gold!
Gold continues its record run
The precious metal pushes further above $1,100 an ounce, after a 5% gain last week, as the dollar weakens broadly.
The Dollar fell Monday after a meeting of finance ministers from the Group of 20 major economies over the weekend ended without a definitive plan to tackle re balancing global money flows.
The dollar index, which gauges the greenback’s value against a basket of currencies, slid 0.9% to a two-week low of 75. So far this year, the dollar has lost more than 7% against its main rivals.
Gold has gained more than 23% this year, and many traders expect the rally to continue into next year given the outlook for continued weakness in the dollar.
A softer greenback makes commodities that are priced in dollars, such as gold, more appealing for investors using other currencies. As a result, gold often rises when the dollar weakens.
As I have mentioned in the past, gold is beginning to transition from a store of wealth to “real” money. Central banks around the world have changed from net sellers to net buyers of gold. This is a significant change that has clearly cemented gold’s foundation going forward.
Gold surges to a record high
The precious metal jumps to settle at an all-time high as the U.S. dollar declines.
NEW YORK (CNNMoney.com) — Gold jumped to an all-time high Wednesday as the dollar depreciated, fueling demand for the metal as a hedge against the anemic greenback.
December gold climbed $12.10 to settle at a record high of $1,114.60 an ounce after hitting a record trading high of $1,118.60 an ounce earlier in the session.
“Overall we’re still seeing strong investor interest,” said Carlos Sanchez, precious metals analyst at CPM Group, adding that gold’s recent rally has attracted many “short-term market participants.”
Prices surged early in the session as the dollar weakened on expectations that U.S. interest rates will remain low for an extended period of time.
Gold pared gains later in the session as the dollar recovered some ground but remained near a 15-month low against rival currencies.
The dollar index (DXY), which gauges the greenback’s value against a basket of currencies, was up 0.1% to 75.11.
Despite the dollar’s modest rebound, the currency market remains focused on the bleak outlook for the U.S. currency.
“The dollar continues to weaken,” Sanchez said. “That’s because of concerns over loose monetary policy and fiscal stimulus that is increasing money flows into financial market and the economy.”
A softer dollar makes commodities that are priced in dollars such as gold cheaper for investors using other currencies.
The weak greenback has also raised concerns among many foreign central banks, since the dollar is the traditional global reserve currency. As a result, some overseas monetary policy makers are said to be looking for ways to diversify away from the dollar.
Last week, the Indian central bank bought 200 metric tons of gold from the International Monetary Fund. That raised bets that more central banks could increase their holdings of the precious metal as an alternative to the dollar.
Gold prices are also being supported by concerns about inflation. While consumer prices remain subdued, some traders say U.S. monetary and fiscal stimulus policies could spur a bout of inflation in the future.
Tangible assets like gold tend to hold value better than other types of investments when inflation is a problem.
Gold holds firmly above $1,100
The precious metal recovers from an early bout of weakness as the dollar depreciates against other currencies.
NEW YORK (CNNMoney.com) — Gold prices rose Friday, recovering from earlier losses, as the U.S. dollar weakened against rival currencies.
December gold was up $9.80 to $1,115.80 an ounce after hitting a low of $1,105.00 earlier in the session. Gold fell Thursday to settle at $1,106.60 an ounce.
Gold prices have rallied to a series of record highs this week, hitting an all-time trading high of $1,123.40 early Thursday. Analysts said gold could continue to push higher if prices close above $1,100 on Friday.
The dollar succumbed to selling pressure at midday Friday after firming in early currency trading. The dollar index, which measures the currency’s value against a basket of rivals, was down 0.3% to 75.33.
A softer greenback makes gold, which is priced in dollars around the world, cheaper for buyers using stronger currencies. The weak dollar has also raised expectations that overseas central banks will move to increase their gold holdings as an alternative to the U.S. currency.
Given the bleak outlook for the dollar, many analysts expect gold to continue rising into next year, albeit at a slower pace.
“We believe the outlook for gold prices remains bullish,” analysts at Deutsche Bank wrote in a research report. “However, the speed of the appreciation over the past few weeks may be difficult to sustain without a further weakening in the U.S. dollar.”
Well, gold did close over $1,100 on Friday and managed to do it in rather convincing style! That brings me to the question of the day!
Where is Gold Heading?
Where Is Gold Heading?
Three things have changed that will alter the gold landscape going forward. These are trend altering changes that guarantee gold’s move to higher levels, and soon!
1. Central Banks are no longer net sellers of gold, they are net buyers of gold!
2. Investment demand replaces jewelry sales as the dominant buyers of gold!
3. Demand for gold has outstripped the supply of gold!
These are three very important changes that guarantee that gold will go to Jim Sinclair’s numbers of $1,224, $1278, and $1,650. $1,224 is in the sights for years end or possibly the first quarter of 2010.
Central Banks Buying Gold!
Central banks are buying gold because they see that the U.S. monetary policy is based on devaluing the dollar in order to continue it’s profligate spending and to bolster it’s export market. They are also net buyers because they are waiting to see what happens to the dollar’s status as the world’s reserve currency. Central banks will remain net gold buyers and more importantly GOLD HOLDERS, while discussions on a new world reserve currency, i.e., IMF Special Drawing Rights, are taking place. IMF members, most notably China, India and Russia want gold included as a component of the new world reserve currency.
This puts huge positions of gold into strong hands that will not be willing to let it go for quick profits which puts a strong foundation under the price of gold. The cloud of central bank selling has been lifted from the gold market.
The odds are extremely favorable that the world’s new reserve currency will have gold to some extent in it’s “basket”. If the new reserve currency were to have a significant gold component, then it would most likely be at a significantly higher gold price based on the excess global liquidity that is being dumped into the system by central bank “quantitative easing” policies.
Investment Demand Replaces Jewelry Demand For Gold!
Jewelry demand has fallen with gold’s record run, but investment demand for bullion and bullion coins has risen to new heights. This is significant because bullion coins tend to stay off the market because they are “insurance” plays. Gold and silver bullion coins tend to “go to ground” after they are purchased. Most people want their “insurance” coins hidden away and they tend not to trade in and out of them, especial in an environment of rising prices such as this one. Bullion coin purchases are far exceeding supply of late which leads to point number three.
Demand For Gold Is Out Stripping Supply!
Gold Production Is Going Down While Demand Is Going Up!
This is economics 101. Gold production has been falling while demand has been rising. There is no other result that can occur other than the value of gold will continue to rise in this environment. Couple this with gold moving into stronger hands and a financial system that is still in turmoil and the stage is set for gold to continue making new highs. Add to this scenario the political “situation” that the U.S. finds itself in due to the Obama administration policies and we have the makings of the “perfect storm” for gold.
Consider these recent comments from Monty Guild regarding the dollar’s fall and gold’s rise. On Tuesday, Guild wrote, “Does the Obama Administration want the U.S. dollar to decline? We believe it does. On November 5th, the U.S. Federal Reserve announced that they intend to keep interest rates exceptionally low for an extended period of time. Given that the U.S. Dollar is already under pressure due to low interest rates, the Fed’s announcement is the equivalent of saying: go ahead and short the dollar. In our opinion, it is clear that this announcement ushers in a period of extreme volatility and a continued downward bias for the U.S. Dollar.
Guild added, “It does not take a rocket scientist to understand that his goals include more unionization and more exports. And because U.S. union workers are in general much more generously compensated than non-union workers, we believe that the only way that the U.S. can achieve higher exports is to devalue the dollar. We therefore believe that it is a goal of the Obama administration to see the dollar decline.”
Monty Guild is an expert money manager with an excellent track record in the field. I would not consider his statements the rantings of some “right wing ideologue” , but rather the reasoned opinion of someone that can still see the difference between the forest and the trees.
It is clear that the price of gold will continue to rise in this environment, but we must not begin to think that the elevator will go straight up. There will be periods when the price of gold retraces and those should be used as buying opportunities.
Physical gold bullion and bullion coins should be held for the reason that they were purchased, as “insurance”. Add to those positions on price pullbacks.
Gold stocks are another situation altogether. Take profits as gold rises. If you can get 25% to 35% profit on a miner take 1/3 of your position off the table. Conversely as the price of gold pulls back buy shares back at lower prices. The trading ranges of different gold shares are pretty clear right now, but keep in mind that if the general equities tumble like they did last year, the gold shares will be sold right along with the general equities as investors will sell anything to meet their margins.
If their is to be a pullback in the price of gold I believe it will be brief, with support at $1064 and $1,028. These would be great buying levels if we see them. On the positive side, I think that we are going to go straight to $1,170′s on this run before we get a pullback. Next week will write the book on that one. Stay vigilant and book profits when you can. We are living in troubled times when many will lose everything and some will gain everything.
Where is gold heading? Up is the obvious answer, and it may be just as simple as that. How we trade the next couple of years will determine how well we have learned our lessons.
Before I go a word of caution from Jim Rodgers on Bubbles, the Dollar, Gold, currency markets and the Fed.
Leave to Jim to put everything in perspective. It does not get any better than that. If only we had clear thinkers like Jim Rodgers in Congress. I guess any understanding of the markets excludes you from running for political office!
Till next time, good luck and good trading!
More Gold Market Analysis:
- Is Gold Putting In a Bottom?
- Is The Gold Correction Over?
- New Record Gold Price!
- Buy Gold on Dips
- Is Soros Trying To Collapse The Dollar?
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