Best of the Week
Most Popular
1.Gold Price Target of USD 2,300 - GoldCore
2.Greece Banking System Collapse Monday as ECB Pulls the Plug, Capital Controls Ahead of GrExit - Nadeem_Walayat
3.Why British Muslims Are Leaving Elysium Paradise for Syrian Hell - Nadeem_Walayat
4.Greece BANKRUPT! Financial and Economic Collapse to Follow IMF Debt Default - Nadeem_Walayat
5.Extreme Gold/Silver Shorting - Zeal_LLC
6.European Empire Strikes Back Against Greek Debt Fantasy, Counting Down to GREXIT - Nadeem_Walayat
7.Gold And Silver – Three Choices: Sell, Hold, Hold and Add. A Trading Treatise - Michael_Noonan
8.Gold and Silver Price Headed for Breakdown - Jordan_Roy_Byrne
9.Greece Crisis OXI - Raul_I_Meijer
10.Flatline Investing and Dead End Debt Schemes - Doug_Wakefield
Last 5 days
Greece Debt Crisis to Trigger Euro-zone Credit Freeze, Expiry of Greek Euro Bank Notes - 7th July 15
SPX Sinking Premarket - 7th July 15
Marc Faber Warns: “Wake Up, People Of The World! Greece Will Come To You …Very Soon” - 7th July 15
The Greek Vote and the EU Miscalculation - 7th July 15
SPX Stocks Index Still on a Sell Signal - 7th July 15
Bill Gross on Greece: 'We're in the Eye of the Hurricane' - 7th July 15
Dow Stocks Bear Market Underway - 6th July 15
Marc Faber Warns of Greece Crisis Contagion Very High Risk - 6th July 15
Greece to Print Counterfeit Euros or IOUs, Hyper-Inflation Beckons - 6th July 15
Stock Market, Investing Big Picture - 6th July 15
“Oxi!” - Greeks Defy EU As Varoufakis Resigns To Ease Tensions With “Partners” - 6th July 15
Stock Market Rally in a Downtrend? - 6th July 15
Silver Price Consolidating Ahead of Another Sharp Drop - 6th July 15
Gold Price Gravitating Lower Towards $1000 - 6th July 15
Syriza Convinces Greece to Commit Suicide, GrExit Beckons, Market Reaction - 6th July 15
Financial and Commodity Markets Become Scary: Crash Point Or Turning Point - 5th July 15
A Revolutionary Pope Calls for Rethinking the Outdated Criteria That Rule the World - 5th July 15
Forget 'Haircut', Instead Syriza Plans Beheading of Greek Bank Depositors, Theft of Deposits - 5th July 15
The Pentagon’s 2015 Strategy For Ruling the World Through Endless War - 5th July 15
United States Celebrates the Disastrous Secession From Great Britain - 5th July 15
Greece Referendum Vote Result Forecast Yes Win, But Depression Will Continue - 5th July 15
The Great Greek Economic Depression - 4th July 15
Happy 4th of July Stock Market Analysis - 4th July 15
The Most Pressing Reason Yet You Want to Avoid Investing in Retail Stocks - 4th July 15
Fed’s Full Normalization and the Stock Market - 3rd July 15
The U.S. Dollar's 2014-2015 Rally: Wave 3 in Action - 3rd July 15
Stock Market Where are we? And where are we Going? - 3rd July 15
Xi’s Anti-Corruption Campaign Is Key to China’s Prospects - 3rd July 15
How the New Iranian Nuclear Deal Will Impact Crude Oil - 3rd July 15
China's Stock Market Rollercoaster Ride Continues - 3rd July 15
Gold Stocks Cheap to Buy but Not for Long - 3rd July 15
Capital Controls and a Bank Holiday in Greece… Here’s How You Can Profit - 3rd July 15
Greece's Varoufakis: I will Resign if there's a 'Yes' Vote - 2nd July 15
The Student Loan Bubble: Gambling with America’s Future - 2nd July 15
Inflation Is Lurking, but This Asset Can Protect You - 2nd July 15
Three Total Wealth Stock Investor Tactics You’ll Need Because Greece Isn’t Over - 2nd July 15
Why This $5.6 Trillion Investor Profit Boom Is Set To Take Off - 2nd July 15
Greek Debt Crisis: "Too late to prepare now" - Video - 2nd July 15
Guaranteed US Dollar Death Dynamics - 2nd July 15
The Greek Stress Test & The Reality Of Incremental Changes - 2nd July 15
Forget Drachmas Greece Syriza Government Could Instruct Central Bank to Print Euros! - 2nd July 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

China Stocks - Where are they going?

Changing Gold Demand and the U.S. Dollar Link

Commodities / Gold and Silver 2013 Feb 19, 2013 - 04:29 PM GMT

By: P_Radomski_CFA

Commodities

The World Gold Council published a report last week that raises a few important questions and quite a few eyebrows, so let's examine it.

You can access the report here. We recommend that you read it, but if you're not going to go through the entire report, please just take a look at its first page and the chart with total demand for gold from 2003 to 2012.


The thing that got people concerned is the decline in demand and in particular the decline in the investment demand. First, let's take a closer look at the decline in total demand. The key point here is that it's not the first time that we see a y-o-y decline in demand. We saw the same in 2006 and in 2009. Guess what price did in the following years - 2007 and 2010? It rallied strongly in both cases. In 2007 gold rallied 31% and in 2010 gold rallied 29%. If gold is to close 2013 30% higher than it closed 2012, then the price for the end of this year would be $2,176.

To measure the investment demand we summed up two columns: "total bar and coin investment" and "ETFs and similar" (source: World Gold Council).

total bar and coin investment

The sum of the two has actually decreased for the first time since this bull market began over 10 years ago. Should this be surprising? Investment demand is very different from regular demand for any good. Normal demand decreases with prices as people don't want to buy things that are getting expensive. With investment goods, it's the other way around because investors that see higher prices tend to extrapolate the trend and buy the expensive asset believing that the price will move even higher in the future. Gold price didn't do much in the second half of 2011 and throughout the whole 2012 - it seems natural to expect investors to be discouraged and thus to invest less.

The dip in demand would likely be bigger this year because of the increased demand in India in 2012 due to expected tariffs increase on gold imports this year. Without this "early demand" we would be likely looking at even lower values.

Is that a bad thing? Not necessarily, because this is something that shows that investors' optimism has declined. In the Feb 8 gold article we wrote the following:

We would like to add that the time factor may make this consolidation significant. Less than 40 years ago the correction took gold much lower - about half of the previous high - before the final rally in gold materialized. At this time we think that the prolonged consolidation might have been enough and gold doesn't have to move even lower - the lack of a rally might have been enough to make people throw in the towel.

Lower investment demand indicates just that - lower levels of investor optimism. The data shows that the correction is actually more discouraging and profound than it seems if you take a look at the price only. The decline in investment demand simply confirms that the price may NOT have to move much lower because the damage to the investor sentiment has already been done. Consequently, it's not a bearish piece of information.

Another important thing visible in the report is what we've been writing about for quite some time - that the official sector is now buying gold instead of selling it. While this makes us a bit concerned as the governments tend to be the worst investors, it is a very positive factor for gold in the years to come. Governments may say what they have to say (just what they have always done) but the money will flow in tune with what they really think. And it's flowing into gold and countries are either demanding their gold back (Germany) or seriously considering it.

Since we analyzed the gold charts themselves in our last gold article, today we would like to focus on the currency markets as they seem to exert the most influence on precious metals in the medium- and long term. We'll start with the Euro Index short-term chart (charts courtesy by http://stockcharts.com)

$XEU Euro - Philadelphia INDX

We see that the index declined on Thursday and also earlier this month. These declines appear to be a verification of the reverse head-and-shoulders pattern and the implications remain bullish at this time.

The same can be said about the implications of the short-term trend - the currency remains above the short-term support line.

Let us now move on to the U.S. dollar with the USD Index serving as a proxy here.

$USD US Dollar Index - Cash Settle (EOD) ICE

In the medium-term USD Index chart, we see that significant declines followed the 2012 top. Since then, a prolonged consolidation period has been seen and the period of declines ahead after such a lengthy consolidation could very well continue and complete the head-and-shoulders pattern in the coming weeks. This would have very negative consequences for the dollar.

Now, we'll have a look at the short-term picture of the USD market.

$USD US Dollar Index - Cash Settle (EOD) ICE

Many investors may now be asking themselves, "Will a breakdown be seen anytime soon?" In the short-term USD Index chart, the fact is that we see that a cyclical turning point is coming very soon. With the preceding move to the upside, we could very well see the long awaited medium-term decline begin. With each consecutive attempt to break down below the support line (neck level of the head-and-shoulders pattern), the odds of success increase slightly. It once again seems that a successful breakdown will be seen soon, and the head-and-shoulders pattern will be completed.

Summing up, current situation in the gold market - as indicated by the abovementioned World Gold Council report - seems to be a good foundation for the substantial rally that we believe will materialize in the coming months. Investor's optimism has clearly cooled off and the institutional part of the market carries on buying more and more of the yellow metal.

The overall situation remains bearish for the USD Index even though the index has rallied a bit this month. The weeks ahead will likely see the index level move to the downside. Once the index reverses direction, a bigger rally will likely be seen in the precious metals sector.

To make sure that you are notified once the new features are implemented, and get immediate access to our free thoughts on the market, including information not available publicly, we urge you to sign up for our free gold newsletter. Sign up today and you'll also get free, 7-day access to the Premium Sections on our website, including valuable tools and charts dedicated to serious Precious Metals Investors and Traders along with our 14 best gold investment practices. It's free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

Przemyslaw Radomski, CFA

Founder, Editor-in-chief

Gold & Silver Investment & Trading Website - SunshineProfits.com

* * * * *

About Sunshine Profits

Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and best silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Przemyslaw Radomski Archive

© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History