Best of the Week
Most Popular
1.Stock Market in DANGER of Strangling the Bears to Death - Nadeem_Walayat
2. Germany Pivoting East, Exit US Dollar, Enter Gold Standard - Jim_Willie_CB
3.Flight MH17 – Kiev Flash Mob's Last False Flag? - Andrew_McKillop
4.Stock Market Crash Nightmare! - Nadeem_Walayat
5.Gold - The Million DOLLAR Question... - Rambus_Chartology
6.Gold And Silver – BRICS And Germany Will Pave The Way - Michael_Noonan
7.The Jewish Selfish Gene, People Chosen by God, Everyone Else is Goyim to Kill - Nadeem_Walayat
8.The Israeli Promised Land Dream - The Criminal Roadmap Towards “Greater Israel”? - Felicity Arbuthnot
9.Which Way is Inflation Blowing? Watch Commodities - Gary_Dorsch
10.U.S. Economy Quarterly Review and Implications for 2014-2015 - Lacy Hunt
Last 5 days
More Weakness Ahead for Gold Miners - 25th July 14
Gold Price Strong Season Starts - 25th July 14
Geopolitics and Markets Red Flags Raised by the Fed and the BIS on Risk-taking - 25th July 14
Gold Lockdown Until Options Expiry - New Singapore Gold Contract Threatens Price Manipulation - 25th July 14
The Bond Markets, Black Swans, and the Tiny Spirit of Santo - 25th July 14
No Road Map For Avoiding The Future - 25th July 14
Israeli War Machine Concentrating Women and Children into UN Schools Before Killing Them - C4News - 25th July 14
Israeli Government Paying Jewish Fundamentalist Students to Post Facebook Gaza War Propaganda - 25th July 14
Why the Stock Market Is Heading For A Fall - This Time Is Not Different - 25th July 14
An Economic “Nuclear Strike” on Moscow, A “War of Degrees” - 25th July 14
BBC, Western Media Working for Israeli Agenda of Perpetual War to Steal Arab Land - 25th July 14
Ukraine: What To Do When Economic Growth Is Gone - 24th July 14
Stock Market Clear and Present Danger Zone - 24th July 14
The Five Elements to Creating a Something-for-Nothing Society - 24th July 14
Instability is the New Normal? - 24th July 14
Israel's Suicide Bombers Over Gaza - 24th July 14
EUR-AUD Heads Into The Danger Zone - 24th July 14
Tesco Supermarket Death Spiral Accelerates as Customers HATE the Mega Brand - 24th July 14
Ukraine MH17 Crisis - Best Remember Who Your Friends Are - 24th July 14
Three Reasons Why Gold Price and Gold Stocks Will Rise - 24th July 14
HUI Gold Bugs Fighting To Break Downtrend - 23rd July 14
What Putin Knows About Flight MH17 - 23rd July 14
Why Microsoft Will Continue to Rebound, Huge Upside Potential - 23rd July 14
Will Putin Survive? - 23rd July 14
MH17 Crash Next Phase Economic Warfare - 22nd July 14
The TRUTH about China’s Massive Gold Hoard - 22nd July 14
Forex Multi-week Consolidation in EUR/USD Ended - 22nd July 14
Bitcoin Price Medium-term Trend Being Tested - 22nd July 14
Beware Of The Flash Mob - 22nd July 14
Can Putin Survive? - 22nd July 14
Israel Assault on Gaza: A Historic Crime, Nazi Like Final Solution - 22nd July 14
Zionist Israel an International Pariah - 22nd July 14
Reflections on the Global Misery Index - 22nd July 14
GDP Economic Statistic : A Brief But Affectionate History - 22nd July 14
TransTech Digest: Super Battery Bio-Power vs. Dirty CleanTech - 21st July 14
How to Find Trading Opportunities in the Currency Markets - 21st July 14
Stock Market One More Pull Back - 21st July 14
The Conquest Of Real - Degenerate Philosophies of the Book - 21st July 14
A Clear Way to Profit from a Graying Population - 21st July 14
Last Chance Critical Financial Market Forecasts Special Total Access - 21st July 14
Stock Market Crash Nightmare! - 21st July 14
Why the Stock Market Is STILL Cheap - 21st July 14
From Gore-Bore To Gore-War - 21st July 14
Gold Price Looking Drab - 21st July 14
An In-Depth Look at Gold Chartology - 21st July 14
The Jewish Selfish Gene, People Chosen by God, Everyone Else is Goyim to Kill - 20th July 14
AUD NZD Taking The Forex Bull By The Horns - 20th July 14
US-backed Israeli Invasion of Gaza Unleashes Death and Destruction - 20th July 14
The Israeli Promised Land Dream - The Criminal Roadmap Towards “Greater Israel”? - 20th July 14
Stock Market in DANGER of Strangling the Bears to Death - 20th July 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Gold Prices Coming to the End of Bear Phase

Commodities / Gold and Silver 2014 May 07, 2014 - 10:32 AM GMT

By: Bob_Kirtley

Commodities

Background
It’s been almost 30 months since the gold bull hit the dizzy heights of $1900/oz back in August 2011, sending many of us into raptures. However, it has been a very different story since then with gold slipping to a low of $1180/oz in June 2013 before bouncing higher to almost touch the $1400/oz level. Fast forward to today and we have gold trading at around $1310/oz level, having tested the June bottom around Christmas time 2013. Many believe that the bottom is now in and the bull has resumed charge, with the bears being exhausted. We would like to agree with them but we are still of the opinion that a challenge to the June lows could still lie ahead of us.


Gold
Gold prices are presently being dragged in both directions with the geo-political issues in the Ukraine putting upward pressure on gold as it is viewed as a safe haven in terms of protecting ones wealth. Gold is something you can take with you should the need arrive and you have to move to a safer location in a hurry. However, for many of us our need to own gold is based the perennial devaluation of our own countries currency. In the world of paper money it is difficult to think of a country where the government is not actively trying to devalue its own currency via various forms of money printing. This form of monetary policy is a short term fix at best as it does not address the basic problem of competitiveness via increased production and better working methods. This is something that we have to live with as our political leaders prioritize their survival through to the next election, rather than do what is best for the longer term.

We have written previously about a possible final capitulation and about monetary policy so today we would like to bring to your attention two other factors that deserve our consideration regarding the direction of the precious metals sector; they are Backwardation and the performance of the US Dollar

Firstly, Backwardation in the price of gold is now more persistent than ever which tells us those investors will pay a higher price today in order to take delivery and secure their purchase. To actually pay now and then have to wait months before your gold is dispatched has the inherent risk of it never being dispatched and/or some sort of cash settlement being offered if an order cannot be completed. To be willing to pay more money today for gold than buy it cheaper in a few months’ time suggests a lack of trust in the current system of futures trading.

Secondly, the US Dollar has an adverse relationship with gold so when it rallies gold prices tend to fall and when the dollar falls gold tends to rise. We can see on the chart below that the dollar is struggling to hold above the ‘79’ level on the US Dollar Index, however it has been there a number of times over the last year and survived the drop.

Should it close for a few days or more below this level we could well see it sold off and drop to around the ‘72’ level in short order. It doesn’t sound like much but it is a fall of almost 10%. Should gold in turn rally by 10% then we would have gold prices standing at $1430/oz. This move up could well be the catalyst that ignites a full scale rally in gold prices.

Silver
Silver prices are struggling today to hold up above the $20/oz level which irritates us as it does not support gold’s advance. Gold and silver usually move in unison even though silver has many industrial purposes which effectively take supply off the market never to be seen again. Silver is managing to trade above the June lows but without any real conviction. Although gold could go it alone we would be far more comfortable if silver prices would put in a more convincing performance and headed to higher ground.

The Precious Metals Mining Stocks
The gold mining sector as represented by the HUI did break down and penetrate the June lows in December 2013, before rallying to around the 250 level. Since then the early 2014 rally has lost some of its traction and formed a sideways consolidation pattern. On occasion the mining sector has been known to lead the precious metals sector to higher ground. This has been difficult of late due to the high costs of mining which in turn puts pressure on any producer’s bottom line, increasing the reluctance of investors to put their hard earned cash at risk.

Conclusion
We are still not sure that this bear phase in the gold bull market is over but we feel that it is closer than ever before. Should the dollar start to plunge then gold prices will increase dramatically. On the other hand should the dollar bounce from current levels and put in a reasonable rally then gold could fall. Given that we entering the summer doldrums for gold it could easily slip far enough to challenge the June 2013 lows of $1180/oz. At the moment its knife edge stuff as it could swing either way.

Our strategy is to keep our gun powder dry until we get either a serious spike down or signs that this bear phase has run its course and is now exhausted. We are looking forward with great excitement for this bull to resume its trek north. We have short listed a number of stocks which we expect to rise in multiples of the gold and silver price rise. This list is constantly being honed in an attempt to select only those stocks with the greatest likelihood of success.

If you are new to this sector of the market do the work right now as the next month or so could herald changes of such magnitude that it will take your breath away.  

Disagree? Then please feel free to comment.

Bob Kirtley
Email:bob@gold-prices.biz
URL: www.silver-prices.net
URL: www.skoptionstrading.com

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. Winners of the GoldDrivers Stock Picking Competition 200

DISCLAIMER : Gold Prices makes no guarantee or warranty on the accuracy or completeness of the data provided on this site. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This website represents our views and nothing more than that. Always consult your registered advisor to assist you with your investments. We accept no liability for any loss arising from the use of the data contained on this website. We may or may not hold a position in these securities at any given time and reserve the right to buy and sell as we think fit.

Bob Kirtley Archive

© 2005-2014 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

Free Report - Financial Markets 2014