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Gold Price Breaking Out or Just Another Letdown

Commodities / Gold and Silver 2016 Feb 16, 2016 - 05:17 PM GMT

By: Sol_Palha

Commodities

From top to bottom of the ladder, greed is aroused without knowing where to find ultimate foothold. Nothing can calm it, since its goal is far beyond all it can attain. Reality seems valueless by comparison with the dreams of fevered imaginations; reality is therefore abandoned.
Emile Durkheim


The fundamental picture according to the data released by the World Gold Council continues to indicate improving fundamentals for Gold. However, we are not believers of fundamental analysis and have proved over and over again that proper technical analysis combined with mass psychology trumps fundamentals by a wide margin.  However, let’s examine some of this data:

Alistair Hewitt, who is the Head of Market Intelligence at the World Gold Council, made the following comments

 “Looking ahead, physical demand will continue to be supported by strong central bank purchases, and continued buying of jewellery, bars, and coins by households across the world, led by India and China. If we just look at the year to date, the investment case for gold is as strong as ever. While stock markets have wobbled, gold has performed well.”

From the fundamental side, there is some more good news; the world gold council released its report for 2015.   In this report, several things stand out which appear to be bullish for Gold.

  • Central bank buying remained strong – up 25% from Q4 2014.  Q4 was the 20th consecutive quarter of net purchasing by central banks.
  • Gold ETFs experienced a slowdown in outflows: 133t in 2015, compared to 185t in 2014.
  • Mining production fell for the first time since 2008; price is based on supply and demand, so if the supply drops and then demand starts to rise, Bullion prices will take off.

The China and India factor
China imported 985 tons of Gold with India coming in at a distant second importing 849 tons of Gold.  These two countries accounted for 45% of total worldwide demand for Gold in 2015.

Global Gold Supplies
Worldwide supplies dropped by 4% from 4,414 tons in 2014 to 4,258 tons in 2015.  Most of this is due to cost cutting operations.  Production from mines dropped by 10% in the 4th quarter and is the first contraction on record since 2008.

Technical outlook

We would need to see a monthly close over $1200 at the very minimum. However, a monthly close above $1260 would be much stronger signal and confirm that Gold had put in a tradable bottom. As for how fast and how far Gold will rally after that is a different story? The fact that the Central Bankers of the world are embracing negative interest rates could act as a limiting factor regarding the speed at which Gold races towards testing its old highs. We know there are some cranks out there calling for a gold price of $50,000 an ounce. Our response to that is two-fold

  • What century are you referring to; if it’s the 22nd or 23rd century then perhaps there could be grain of truth here
  • Secondly what planet are these dudes residing on? Gold has not even traded to $2,000, and yet they have the audacity to issue insane targets of $50,000 an ounce.

The four top stocks in the mining sector are DRD, LSG, SBGL, and RIC, for those of you that might be thinking of deploying money into stocks. We would hold off from taking any long positions in stocks, but think it’s a good time to deploy some money into bullion. Use pullbacks to open new positions in Gold as for now it appears Gold is not still not ready to rock N roll. 

by Sol Palha

www.tacticalinvestor.com

Sol Palha is a market analyst and educator who uses Mass Psychology, Technical Analysis and Esoteric Cycles to keep you on the right side of the market. He and his partners are on the web at www.tacticalinvestor.com.

© 2016 Copyright Sol Palha- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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