Best of the Week
Most Popular
1.UK House Prices BrExit Crash NOT Likely Despite London Property Market Weakness - Nadeem_Walayat
2.BrExit Morning - New Dawn for Britain, Independence Day! - Nadeem_Walayat
3.LEAVE Wins EU Referendum - Sterling and FTSE Hit Hard, Pollsters, Bookies and Markets All WRONG! - Nadeem_Walayat
4.BrExit Implications for UK Stock Market, Sterling GBP, House Prices and UK Politics... - Nadeem_Walayat
5.Trading BrExit - Stocks, Bonds, Sterling, Opinion Polls, Bookmaker Odds and My Forecast - Nadeem_Walayat
6.FTSE and Sterling Brexit Trading, Deconstruction of the EU Referendum Result - Nadeem_Walayat
7.UK Interest Rate Cut to 0.25% Imminent and More QE Money Printing - Nadeem_Walayat
8.Trading BrExit - British Pound Plunges, FTSE Stock Futures Slump on LEAVE Shock Referendum Win - Nadeem_Walayat
9.The Stock Market is Reading it Wrong! - Chris_Vermeulen
10.Breakouts Galore in Gold and Silver - Jordan_Roy_Byrne
Free Silver
Last 7 days
Asset Bubbles Tend to Crash with a Vengeance - 29th July 16
Retirees Are Risking Their Life Savings on Junk Bonds - 29th July 16
The Next Recession is Coming - Expect Around 0% Returns for the Next 7 Years - 29th July 16
SPX is Shaking and Rolling - 29th July 16
Stock Market Insiders Are Secretly Selling, Cycle Top Next Month - 28th July 16
FOMC Interest Rates and Their Impact on the US Economy - 28th July 16
The State Of The Economy - 28th July 16
Elliott Wave Crash Course - 3 Ways the Elliott Wave Principle Enhances Your Trading - 28th July 16
Japan's "Helicopter Money" Play: Road to Hyperinflation or Cure Debt Deflation? - 27th July 16
Monetary Zika - The Insidious Nature of Credit Expansion - 27th July 16
Gold and Pork Bellies - 27th July 16
Silver Is Insurance Against The Worst Part Of This Depression - 27th July 16
Don’t Buy The SPX Hope Stock Market Rally! - 27th July 16
Bitcoin $650 Still in Play - 26th July 16
Deutche Bank Stock Price Crash - The EU Has Problems Far Beyond the Brexit - 26th July 16
The Forex Markets Are Getting Exciting! - 26th July 16
Underpriced Silver Is the “Rip Van Winkle” Metal - 25th July 16
Declines in Multiple Market Indexes - 25th July 16
Retailers Are Doomed as Most Americans Are Too Poor to Shop - 25th July 16
Here’s One Currency That Could Go to Zero - 25th July 16
Stock Market Top is Expanding - 25th July 16
Silver Manipulation – Because They Needed the Eggs - 25th July 16
Silver Market COT Stuns: What's Going On Here? - 24th July 16
Gold Demand Remains Stable During Sector Weakness - 24th July 16
Sernova, Diabetes and Haemophilia - 24th July 16
Russia: Tensions, Turmoil, and Western Hubris - 24th July 16
Soybean Commodity Price to Soar Again - 23rd July 16
SPX Stock Market Uptrend Continues - 23rd July 16
Gold And Silver – Debt Addiction Will Carry Precious Metals Higher, Guaranteed - 23rd July 16
Pokemon Go - How to Play, First Use, Balls, Stops, Catching Pokemon's... Great Excercise! - 23rd July 16
7 Signs That the Gold Market Remains Resilient - 23rd July 16
Basic Income in The Time of Crisis - 23rd July 16
Silver Bull Faces Correction - 22nd July 16
The Serious Warning No One’s Talking About - 22nd July 16
Stock Market Insight from Greed, Volatility, and Put/Call Ratio - 22nd July 16
What Will Happen To the Stock Market When Interest Rates Rise? - 22nd July 16
How to Escape the World’s Biggest Ponzi Scheme - 22nd July 16
Addicted to Debt - We Can’t Borrow from the Future Anymore - 21st July 16
Not Everything Is Bullish for Gold - 21st July 16
Don’t Get Sucked Back Into the Stock Market - The Big Picture Hasn’t Changed - 21st July 16
Silver – Caught Inside - 21st July 16
Forex: "The Markets Are Getting Exciting!" - 20th July 16
China Economic Troubles - Is Kyle Bass Finally Getting His Revenge? - 20th July 16
Why Lithium Will See Another Price Spike This Fall - 20th July 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Power of the Wave Principle

Reasons To Buy Gold NOW!

Commodities / Gold and Silver 2014 Jan 14, 2014 - 10:18 AM GMT

By: Money_Morning

Commodities

Peter Krauth writes: Gold fell by 28% in 2013. That's a huge reversal of a decade-plus trend.

Between 2001 and 2012, gold managed positive gains every single year, a track record unmatched by any major asset.

The precious metal went from a low of $255 in April 2001 to a high of $1,900 in September 2011, for a peak return of 745%.


Since then, gold has given back 35% from its $1,900 high, leading many to call the end of the gold bull market.

But is it really finished?

By looking at history and numerous indicators, I've found a different story.

One that will jumpstart your 2014 profits...

Simple Economics Guarantees a Gold Rally

Fundamental drivers for gold are so numerous I hardly know where to start.

Unprecedented quantitative easing (money printing) and ultra-low interest rate policies imposed by central banks - especially in the United States, Japan, Europe and China - are in the news every day.

Here are several others that aren't grabbing headlines yet, but shouldn't be ignored.

Shuttering Operations: It's no secret that falling gold prices have made numerous mines unprofitable. That's pressured management at those mining companies to rationalize their operations. Producing gold at a loss doesn't make for happy shareholders.

So mines are being put on care and maintenance, seriously cutting into gold production worldwide. Evy Hambro, who manages BlackRock Inc.'s $8 billion World Mining Fund, said gold supply could fall "quite rapidly" as producers restrict output at higher-cost mines.

Fewer Discoveries: Lower gold prices have meant, of course, lower profits. So, miners are cutting back on expenses that aren't immediately accretive, affecting the development of mine expansions, new projects, and exploration. That's inevitably going to mean fewer ounces available to mine in the near and medium terms than would have been the case without this gold price rout. There were half as many drills looking for precious metals in the first 9 months of 2013 versus 2012.

High-Grading: In response to lower prices, gold miners have resorted to mining higher-grade ores while leaving behind low-grade ores. That allows them to be more profitable on ounces produced this way, but it means much higher prices will be needed to go back to the lower-grade ores. In some cases, these may never even be mined out at all.

Physical Asian Buying: Asia loves gold, and that trend continues. In the first nine months of 2013, India and China together had bought 1,500 tonnes (1,653 short tons) of gold, easily dwarfing Western purchases. When Indian, Chinese, and central bank buying are combined, they account for nearly the entire annual world gold production.

Overall, gold fundamentals have not only remained intact, they've continued to improve. So it's easy to project them to push higher gold prices in the future. They've got the laws of economics behind them...

Gold Hits the Same Bottom - Twice

An important part of technical analysis involves analyzing price action. And gold's had plenty of that over the past year.

Most significant was the massive price drop in mid-April when a black swan crash-landed on the gold market.

Over just two trading days, gold futures prices shed 13%, falling from $1,575 to $1,375. That $200 cliff dive was the largest two-day drop in 33 years.

By late June the price had fallen further still, to $1,180 per ounce. So far, that's been the low.

Recent news of the Fed's QE tapering again weighed on gold in late December, causing it to momentarily drop to $1,182, then immediately reverse upward by $32.

While it's still early to say for sure, that may have been a "double bottom" - dropping twice to the same level without moving further down - hit in June then in December. This increases the chances that the $1,180 level is the low for gold prices in this drawn-out consolidation process.

We can see from this chart that gold has now twice "tested" $1,180 and moved higher from there.

Does this mean gold's price is out of the woods? Not necessarily, but the trees are thinning.

Too Many Contract Holders, Too Little Gold

It's fair to say that after a long stretch of falling gold prices, the precious metal's not just hated, it's despised.
gold spot price

And that's often a tremendous contrarian indicator.

Combine that with some recent action in the futures market, and we've got more very bullish indicators for gold.

Recent Commitment of Traders (COT) reports at the end of 2013 showed that hedge funds (large speculators) had a record short position on the Comex in New York; extreme bearishness is a great contrarian indicator.

On the flipside, the large bullion banks have reverted from holding net short positions to holding net longs in the stretch from 2004 until mid-2013.

By late 2012, the four largest banks held a $12.5 billion short futures position. Since then, there's been a massive reversal of some $20 billion, with these same banks now holding a $7 billion long position.

And there's more.

In the week of Dec. 23, 2013, Comex-registered gold inventories (gold available for delivery) dropped to their lowest in a year, with an incredible 92 claims for each registered ounce. What will happen when a few too many contract holders decide to take delivery at maturity?

Just the fact that there are so many claims for each ounce increases the odds that if too many deliveries are requested, the exchange could "default" and be forced to pay out in cash rather than gold.

That would likely be a major shot in the arm for the price of gold.

All of these factors point toward higher gold prices ahead.

Does that mean they'll go straight up? Unlikely, since nothing goes up in a straight line.

So we can expect continued volatility in the gold price this year, with some risk for lower prices, but a strong bias to the upside.

I think we're likely to see gold close the year higher than where it started. Since its bottom in April 2001, gold has compounded at a rate of about 15% annually. Given that it has some catching up to do for the last couple of years, I think we could see the precious metal gain as much as 25% this year, bringing its price to the $1,600 range.

Your Best Move to Start the Year

What's the best way to play gold right now? Like I tell my subscribers, gold's cheap at these prices. If you don't own any, buy some bars or coins. If you feel you don't own enough, this looks like a good time to add to your holdings.

Within gold equities, I really like the royalty companies. Many are cashed up and well-positioned to make strategic moves.

In this trying environment for miners struggling with rising production costs and scant financing options, royalty and streaming companies have the upper hand, able to do financing deals with extremely favorable terms (for them). They have cash when cash is scarce, and that will pay off big time.

Consider Royal Gold Inc. USA (Nasdaq: RGLD), a $3.3 billion royalty company, with interests in more than 200 production, development, and exploration-stage royalties. Royal Gold boasts $680 million in working capital and $350 million in undrawn credit it can put to work.

Needless to say, Royal Gold offers robust leverage to the gold price.

Fundamentals, technical, and the end-around of contrarians are all lined up behind a bull run in 2014. And the timing is right to join the front of the line...

Source : http://moneymorning.com/2014/01/14/1600-reasons-buy-gold-now/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2016 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

Catching a Falling Financial Knife