Getting Mixed Signals In Gold
Right now I'm getting mixed signals from gold, silver and platinum. If you look at the above chart you'll notice that both silver and platinum are much weaker than gold. In fact, platinum is making a new swing low while gold is forming what appears to be a higher low.
In order for me to be bullish on gold, I would prefer to see both platinum and silver making higher lows but we are not seeing that. In my opinion this creates a mixed picture which makes forecasting a move in gold a low probability situation. I will remain on the sidelines for now and wait for the next low risk trade to present itself.
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4 comments:
Kevin,
I think what you are seeing is the decommodization of gold and the remonification of it. Gold has been in limbo for decades. Banks treat it as money for settling international debt, but people don't use it for money anymore and no gov't currency is backed by it.
As paper gold contracts are selling off, real gold is flying off the shelf and the US mint is out of buffalos and eagles now. I called monex and they still have Gold philharmonics, but shipments have been delayed.
If gold was still being treated as a commodity it should be $500 by now. But platinum and silver are commodities. Silver is poor man's gold and is now trading just like platinum - as a commodity. It will likely be remonified when the dollar goes bust.
JP Morgan said "gold is money, and nothing else is.". I think that's what the charts are telling you.
think about it this way. if you think of gold as a very overpriced commodity, i.e. oil, then it will drop in price when the value if a major currency is devalued. if gold was correctly valued it would be going up, because it is in the middle ground that why i believe it is acting very strangely. with reference to the first comment, once supply get crunched we will see it go up as a something of monetary value not go down as a commodity like it is now. i think the indecision now is essentially the overvaluation of gold as a commodity is getting factored out of its price.
i think you have to take into consideration the volatility in gold also has to do with the deleveraging and hedge fund redemptions. a lot of selling in gold has been hedge funds taking off hedges since they are unwinding losing positions that they need to sell off. also they could be just flat out selling to raise cash to meet redemptions. that definitely plays into the mix somewhere. i just posted up a bunch of performance figures for hedge funds on my blog and they're getting slaughtered. volatility is here to stay
When we see the bank of China telling the world that it is tired of the dollar hegemony (but that it wants and orderly exit) and we see the Chinese gov't telling its banks not to lend to US banks then I think the faith in the credit of the USA is not strong, especially given our world class indebtedness. Since our fiat currency is backed only by the full faith and credit of a gov't in which faith is plummeting and credit is being cut off I would expect gold to continue to climb at the average exponential rate of 8.65% (or higher) which it has been doing since 2002. Any talk of gold being overvalued simply ignores the fundamental problems with the dollar which, unfortunately, are huge at this point.
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