Before we pronounce gold dead and write its final eulogy, let’s consider the following:
Dr Ron Paul, the popular Presidential candidate and America and the world’s most popular libertarian voice, told CNBC yesterday that he “still believes in gold” and that “gold could go to infinity.”
Paul informed the MSM host why the long term case for gold remains intact (while Jackie DeAngelis stated gold’s 8% performance year to date is disappointing):
“Timing is the only thing. I remember watching gold when it was 35 dollars an ounce and we thought if it ever hit a hundred dollars, the world would come to an end. And then a thousand dollars, so; no, it’s good as long as we continues to do this [print money] , you know, it could go to infinity because when people just leave the dollar, who knows what.”
In 2009, I suggested that a huge inverse H&S bull continuation pattern was forming on the gold chart. It had “outrageously bullish” implications. I believe a much bigger inverse H&S bull continuation pattern is forming now on the monthly gold chart.
If I’m correct, the “bare minimum” arithmetic target is: $2663.
I think my target price is absolutely justified by the global fundamental and geopolitical price drivers.
Global fundamentals for gold are outrageously bullish!
Let’s do a quick review of the facts.
A storm approaches like no other financial storm ever seen on the face of the earth.
A derivatives contagion capable of wiping out the entire financial system in an hour, is coming.
“In the past, when you could get 6 or 7 percent interest on a CD, and inflation was 2 or 3 percent, you were still ahead of the game. But now you get a half a percent on your CD and inflation is 2, 3, 4, 5, whatever it actually is – you’re losing. You can’t win. And so as more people wake up to this reality, the demand for gold is just going to explode worldwide. And the price of gold is going to go through the roof.” -Peter Schiff
The gold price continued last week’s fall into Monday, which was the end of the first quarter of 2014. Since then having reached a low point of $1278 in New York trading, gold rallied to a high of $1294 on Tuesday before weakening on Thursday morning.
The biggest influence was not stories and announcements, but the market-makers’ attempts to reduce their exposure by the quarter-end.
This can be clearly seen in the chart of gold and open interest below.
“In 1980, when the gold price peaked at $800, it took 1 ounce of gold to buy the Dow Jones Index. After 1980, financial assets took the lead over hard assets. In 1999, it took 44 ounces of gold to buy the Dow Jones, at a gold price of $250. If gold were to regain the position it held in 1980, we could easily see a 3:1 ratio – gold at $5,000 given the current level of the Dow Jones, or even $15,000 if gold returns to the 1:1 level.“
The rally is on. The onlookers now agree that it is on. Buy orders are flowing into gold. For myself, having done a lot of buying in April, July and Dec 2013, I must say that am getting nervous. I don’t want to be in a company of late bulls!
But nervous is OK. “Climbing a wall of worry” has always been a good phrase to describe a rally which may continue still more.
n Argentina, the price of gold rose about 28% in the first month of this year. In the meantime, the price of gold in euro’s and dollars rose about 5%. The big difference is the result of a devaluation of the Argentine currency, the peso. The devaluation is unfortunate for savers, because they saw the real value of their savings decline. The gains are for the debtors, whose debts in real terms went down by the same amount.
Argentinians who converted their savings into gold were barely harmed by the devaluation of the currency. While the money in their pocket lost some value, their gold didn’t.
Adjusted for the quantity of fiat money, gold at $1200 nominal is now trading at 64% of its price in July 2008. At that time systemic risk was not fully understood by investors, and FMQ has since hyper-inflated. If gold returned to the same valuation today as before the Lehman crisis, it would be priced at $1883, without any premium for systemic risk or the increased possibility of a dollar currency collapse, the increasingly likely result of FMQ’s post-Lehman hyper-inflation.
The Shanghai Futures Exchange has cut its gold and silver margin requirements. The bourse will cut margin requirements for gold and silver futures to 4% from 7%, according to amended trading rules posted on its website. Trading limits for silver and steel rebar futures will be lowered to 3% from 5%, the exchange says. The amendment will go effect on June 25.
The recent 22% decline in gold prices may lead to a substantial drop in gold production. During the 26% plunge in gold prices in 2007-08, gold production fell by 9.4%. Balance sheets in much of the gold mining sector are much worse than they were in 2007 and this may also force production cutbacks from the major producers, while growth from junior miners may struggle given the dire financing backdrop.
This will support gold in the long term.
Google trends data indicates that in the past week, global searches for “gold price” have skyrocketed to an all-time high, dwarfing the previous high seen during the summer 2011 run to $1915/oz!
Gold and silver have been greeted to yet another waterfall plunge as the first trading since the CME hiked margins in both metals by 18% after today’s COMEX close. Silver has plunged nearly another dollar to $22.50, and gold another $25 to $1350.
*Update: Both metals have already retraced nearly all of their latest losses, as silver has quickly spiked back to $23.15, and gold to $1365
In today’s modern world, there may not be a better gauge for overall public sentiment than Google search engine results.
With gold and silver nearing 2 years of bull market correction, gold and silver search terms and traffic in the US are roughly 40% of the levels seen in 2011.
In China however, google search trends for gold are a completely different story…