Best of the Week
Most Popular
1. Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - Nadeem_Walayat
2.Gold Price Focusing on May Cycle Bottom - Jim_Curry
3.Silver, silver, and silver! There’s More Than Silver, People! - P_Radomski_CFA
4.Is the Malaysian Economy a Potemkin Village - Sam_Chee_Kong
5.Stock Market Study Shows Why You Shouldn’t “Sell in May and Go Away” - Troy_Bombardia
6.A Big Stock Market Shock is About to Start - Martin C
7.A Long Term Gold Very Unpopular View - Rambus_Chartology
8.Stock Market “Sell in May and go away” Study When Stocks Are Down YTD - Troy_Bombardia
9.Global Currency RESET Challenge: Ultimate Twist - Jim_Willie_CB
10.The Coming Silver Supply Crunch Is Worse Than You Know - Jeff Clark
Last 7 days
Short-term Turnaround in Bitcoin Might Not Be What You Think - 19th Jun 18
Stock Market’s Short Term Downside Will be Limited - 19th Jun 18
Natural Gas Setup for 32% Move in UGAZ Fund - 19th Jun 18
Magnus Collective To Empower Automation And Artificial Intelligence - 19th Jun 18
Trump A Bull in a China Shop - 19th Jun 18
Minor Car Accident! What Happens After You Report Your Accident to Your Insurer - 19th Jun 18
US Majors Flush Out A Major Pivot Low and What’s Next - 18th Jun 18
Cocoa Commodities Trading Analysis - 18th Jun 18
Stock Market Consolidating in an Uptrend - 18th Jun 18
Russell Has Gone Up 7 Weeks in a Row. EXTREMELY Bullish for Stocks - 18th Jun 18
What Happens Next to Stocks when Tech Massively Outperforms Utilities and Consumer Staples - 18th Jun 18
The Trillion Dollar Market You’ve Never Heard Of - 18th Jun 18
The Corruption of Capitalism - 17th Jun 18
North Korea, Trade Wars, Precious Metals and Bitcoin - 17th Jun 18
Climate Change and Fish Stocks – Burning Oxygen! - 17th Jun 18
A $1,180 Ticket to NEW Trading Opportunities, FREE! - 16th Jun 18
Gold Bullish on Fed Interest Rate Hike - 16th Jun 18
Respite for Bitcoin Traders Might Be Deceptive - 16th Jun 18
The Euro Crashed Yesterday. Bearish for Euro and Bullish for USD - 15th Jun 18
Inflation Trade, in Progress Since Gold Kicked it Off - 15th Jun 18
Can Saudi Arabia Prevent The Next Oil Shock? - 15th Jun 18
The Biggest Online Gambling Companies - 15th Jun 18
Powell's Excess Reserve Change and Gold - 15th Jun 18
Is This a Big Sign of a Big Stock Market Turn? - 15th Jun 18
Will Italy Sink the EU and Boost Gold? - 15th Jun 18
Bumper Crash! Land Rover Discovery Sport vs Audi - 15th Jun 18
Stock Market Topping Pattern or Just Pause Before Going Higher? - 14th Jun 18
Is the ECB Ending QE a Good Thing? Markets Think So - 14th Jun 18
Yield Curve Continues to Flatten. A Bullish Sign for the Stock Market - 14th Jun 18
How Online Gambling has Impacted the Economy - 14th Jun 18
Crude Oil Price Targeting $58 ppb Before Finding Support - 14th Jun 18
Stock Market Near Another Top? - 14th Jun 18
Thorpe Park REAL Walking Dead Living Nightmare Zombie Car Park Ride Experience! - 14th Jun 18
More on that Gold and Silver Ratio 'Deviant Conundrum' - 13th Jun 18
Silver Shares? Nobody Cares - 13th Jun 18
What Happens to Stocks, Forex, Commodities, and Bonds When the Fed Hikes Rates - 13th Jun 18
Gold and Silver Price Setting Up for A Sleeper Breakout - 13th Jun 18
Tesla Stock Analysis - 12th Jun 18
What Happens Next to Stocks when Russell Goes up 6 Weeks in a Row - 12th Jun 18
Gold vs. Stocks: Ratios Do Not Imply Correlation - 12th Jun 18
Silver’s Not-so-subtle Outperformance - 12th Jun 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

Gold Price Down 13.5% In 13 Days - Opportunity For Geometric Price Cost Averaging

Commodities / Gold and Silver 2016 Nov 26, 2016 - 05:01 PM GMT

By: GoldCore

Commodities

  • Gold down 13% in 13 trading days since Trump election
  • Factors that have led to lower gold prices
  • Trump bearish for gold in coming four years?
  • ‘Trumpflation’ cometh
  • Sharia gold – vaulted gold accessible to 110 million new investors
  • What to do? Diversify and geometric price cost average

By ;@Skoylesy . Editor ;@MarkTOByrne

Donald Trump was elected President and the gold price surged 5%, over $60, from $1,271/oz to $1,336/oz. As many of us had suggested it would. And then something strange happened, something not expected by the majority of market participants – it started to fall, the dollar strengthened.

We now have a gold price that is down 13% since the US election result – from a high of $1,336/oz to a low of $1,177/oz this morning. This is a drop of 13% in just 13 trading days since the election.

Does this mean that Trump and his Presidency isn’t going to be very bullish for gold prices as so many of us predicted? Does this mean that gold is going to underperform  or worse, enter a bear market in the next four years?

We don’t think so. Indeed, we see this as extremely unlikely. We outline below just some of the factors that have lead to the recent declines in the gold price, and outline why we don’t think this is a sign of things to come.

US dollar strengthens as Federal rate hike looms

For many in the gold space the miserable gold price is thanks to the expectations that Janet Yellen and co. will decide to hike rates thanks to some mixed data that suggestes a strengthening US jobs market. These were the noises emanating from the recent Federal Reserve Open Markets Committee meeting press release.

The US Dollar has rallied to its highest level since 2005 this week, largely on the back of these Fed expectations. Higher borrowing costs can hurt gold bullion as strategic buyers look at gold in the context of yields and interest payments. Although this is less the case now given ultra loose zero percent and negative interest rate monetary policies.

ETF support gone … for now

In 2016 gold demand has been supported by stellar ETF demand as, according to the World Gold Council, the high gold price in Q3 had a negative impact on gold demand, elsewhere.

For the SPDR Gold Trust and the iShares Gold Trust combined inflows are worth around $13.6 billion for this year (a record).

Both jewellery and gold bars and coin sales have reached levels this year not seen since 2009. But physical demand has not reflected such levels in Q3. After very significant demand and the price surge in Q1 and Q2, Q3 saw a reduction in demand for jewellery and coins and bars.

Whilst central banks, which have been huge buyers (and therefore supporters) in the physical gold market, have reduced gold reserve diversification to 33% of that in 2015.

“ETPs were the only bright spot during the quarter, with 146t of inflows helping to counterbalance weak demand elsewhere, notably in jewellery (-21%), bars and coins (-36%) and purchases by central banks (-51%).”

But that bright spot has started to dim since the Trump’s victory:

According to ETF.com “in the week since the election, outflows from the SPDR Gold Trust and the iShares Gold Trust totalled $1.7 billion…the aftermath of the elections has clearly dampened enthusiasm for gold among ETF investors.”

Therefore it is unsurprising that a market that has been significantly supported by one investment product is now struggling as the outflows add up.

But the ETF argument raises an interesting point

As the World Gold Council stated in their recent report, much of the activity surrounding gold purchases this year (especially in the area of ETFs) shows strategic buying rather than investment buying.

This was no more clear than on the early hours of the election night on November 9th, as Jim Rickards recently outlined,

“Gold prices surged late on Nov. 8 and into the early morning hours of Nov. 9 as a Trump victory became clear. This was exactly in line with my expectations. Based on sentiment and momentum, gold should have held those gains.

Instead, one of the largest and most visible individual gold investors, Stan Druckenmiller, decided to liquidate his entire gold position in the middle of the night. Druckenmiller told CNBC: “I sold all my gold on the night of the election… All the reasons I have owned it for the last couple of years, it seems to me they may be ending. And by the way, they’re ending globally.”

The move by Druckenmiller saw gold continue to decline in the following days thanks to a change in sentiment. Many sheep like traders adopted a ‘me too’ attitude. Momentum is a powerful thing in markets.

Do the reasons to own gold no longer exist?

In short, no.

In lengthier words, still no. One of the main reasons for the dollar strength and uptick in industrial metals is because Trump is expected to spend, spend, spend his way back to making ‘America Great Again.’ The Donald in the White House means reduced regulation, a fall in corporate taxes and trillions of dollars of fiscal stimulus.

‘Trumpflation’ cometh.

All of this without any thought to the inflationary effects.

Jim Rickards, explains:

“If the Fed accommodates the deficit with “helicopter money,” inflation will surge. If the Fed leans against the big deficits with rate hikes, this will cause a stronger dollar and lead to a global liquidity crisis in emerging markets.

If bank regulation is eased, banks can be relied upon to leverage up with risky derivatives, which will make the next financial crisis more, not less, likely. Druckenmiller’s stated reasons for selling gold are equivalent to saying, ‘I cancelled my fire insurance because now that Trump is president, we won’t have any more fires.’ Don’t count on it.”

Druckenmiller is a great investor but like the majority of investors simply does not understand gold’s role as a hedging instrument and financial insurance – either through choosing not to or through lack of knowledge.

Both Brexit and the Trump victory have wrong footed the financial markets and we are heading into unchartered territory both politically and economically. Unchartered territory means complex decisions are needed to be made by both governments and investors in order to navigate their way through over the coming years.

Uncertainty will lead to bargain hunting

A lot of uncertainty remains in both the geopolitical and economic arenas.

Conventional wisdom told us that gold would benefit from a Trump win, and in truth we haven’t seen the results of Trump win. This will play out over the next four years, and this is where we expect the precious metal to benefit.

Aside from Trump’s disastrous spending policies and strategic gold buyers dumping the metal for equities, there are some highlights to consider in the next few months.

With each Republican nomination contest we see at least one candidate mention the role of gold in the monetary system. In this recent one, we had a couple and one of them was Donald Trump.

It’s highly unlikely Trump is going to be forcing Janet Yellen to announce a return to the gold standard, but we may well see more discussion about gold’s monetary role.

In addition to Trump taking a shine to gold, the gold market is soon to see a significant increase in investors when vaulted gold coins and bars become accessible to over 110 million Muslim investors in Turkey, Pakistan,  Malaysia, Indonesia, Bahrain, Qatar, Saudi Arabia and the United Arab Emirates

As we outlined last week, the Sharia Gold Standard or Islamic Gold Standard is set to be announced, this will allow Muslims around the world to invest in physical gold.

The reasons to own gold have not disappeared in the dawn-of Trump. As Rickards says:

“The reasons to own gold are insurance against extreme risk, as a hedge against inflation, and as a sound form of money in a world where central banks are losing control. All of those reasons still apply”

There are also the not inconsiderable risks posed by the Italian referendum on Sunday week, December 4th, and the French general election on April 23, 2017. Both of which have the potential to plunge the Eurozone into a new crisis – a potentially existential one.

Medium and Long Term (2017-2025) ‘MSGM’ Fundamentals

The long term case for having an allocation to precious metals is due to the still positive fundamentals:

  • Macroeconomic riskis high as there is a serious risk of recessions in major industrial nations with negative data emanating from the debt laden Eurozone, Japan and China. Even the recoveries in the UK and the U.S. are tentative at best. Issues with banks, a la Lehman or Deutsche, or a major terrorist incident or another war could badly impact fragile consumer and investor sentiment.
  • Systemic risk remains high as little of the problems in the banking system have been addressed. There remains the risk of another ‘Lehman Brothers’ moment or a new ‘Grexit’ moment and seizing up of the global financial system. The massive risk from the unregulated “shadow banking system” continues to be significantly underappreciated. There are many potential Lehman Brothers out there both in the Eurozone with Deutsche Bank looking very vulnerable.
  • Geopolitical risk  remains elevated – and Trump’s election seems likely to exacerbate these risks. This is seen in the continuing significant tensions in Lebanon, Syria etc and between Iran and Israel. There is the real risk of conflict and the consequent effect on oil prices and the global economy. While tensions with Russia may subside with the Trump election, tensions with Iran and other Muslim nations look set to worsen.Indeed Trump’s trade and economic policies have the potential to create significant tensions even with major trading partners in the EU and with China.
  • Monetary risk is high as the policy response of the Federal Reserve, the ECB, the Bank of England, the BOJ and the majority of central banks to the risks mentioned above continues to be ultra-loose monetary policies, zero interest rate policies (ZIRP), negative interest rate policies (NIRP), the printing and electronic creation of a tsunami of currency and the debasement of paper and electronic currencies.Should the macroeconomic, systemic and geopolitical risks increase even further in the coming months, then the central banks’ response will likely again be more cheap money policies. This will lead to further currency debasement and there is a risk of currency wars deepening.

Given these real risks, investors should use this latest correction to diversify into physical gold.

There is a strong case for having higher allocations to physical gold today, of as much as 25% of a portfolio, given the risks above.  We advise owning physical gold as gold ETFs have significant levels of legal indemnifications and various forms of force majeures that exposes investors to unnecessary risks with little recourse.

Hence the importance of physical, allocated and segregated gold “outside the banking system.”

Those seeking to allocate funds to precious metals should geometrically price cost average into position by front loading their initial allocation and allocating as much of 50% of their allocation to gold on the first transaction.

This latest bout of weakness will allow value buyers to accumulate physical on the dip.

$6 billion ‘puke’ sends gold plunging below $1200. Source Zero Hedge

7RealRisksBanner

Gold Prices (LBMA AM)

25 Nov: USD 1,187.50, GBP 995.33 & EUR 1,121.83 per ounce
24 Nov: USD 1,187.25, GBP 995.36 & EUR 1,125.04 per ounce
23 Nov: USD 1,213.25, GBP 998.00 & EUR 1,143.00 per ounce
22 Nov: USD 1,217.55, GBP 997.89 & EUR 1,144.98 per ounce
21 Nov: USD 1,214.95, GBP 984.72 & EUR 1,143.39 per ounce
18 Nov: USD 1,206.10, GBP 971.15 & EUR 1,135.54 per ounce
17 Nov: USD 1,232.00, GBP 988.19 & EUR 1,148.10 per ounce

Silver Prices (LBMA)

25 Nov: USD 16.47, GBP 13.21 & EUR 15.55 per ounce
24 Nov: USD 16.31, GBP 13.09 & EUR 15.43 per ounce
23 Nov: USD 16.56, GBP 13.36 & EUR 15.59 per ounce
22 Nov: USD 16.76, GBP 13.46 & EUR 15.77 per ounce
21 Nov: USD 16.68, GBP 13.47 & EUR 15.69 per ounce
18 Nov: USD 16.51, GBP 13.30 & EUR 15.54 per ounce
17 Nov: USD 17.04, GBP 13.65 & EUR 15.87 per ounce

This update can be found on the GoldCore blog here.

IRL
63
FITZWILLIAM SQUARE
DUBLIN 2

E info@goldcore.com

UK
NO. 1 CORNHILL
LONDON 2
EC3V 3ND

IRL +353 (0)1 632 5010
UK +44 (0)203 086 9200
US +1 (302)635 1160

W http://www.goldcore.com/uk/

WINNERS MoneyMate and Investor Magazine Financial Analysts 2006

Disclaimer: The information in this document has been obtained from sources, which we believe to be reliable. We cannot guarantee its accuracy or completeness. It does not constitute a solicitation for the purchase or sale of any investment. Any person acting on the information contained in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken. Investors should note the following: Past experience is not necessarily a guide to future performance. The value of investments may fall or rise against investors' interests. Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies. GoldCore Limited, trading as GoldCore is a Multi-Agency Intermediary regulated by the Irish Financial Regulator.

GoldCore is committed to complying with the requirements of the Data Protection Act. This means that in the provision of our services, appropriate personal information is processed and kept securely. It also means that we will never sell your details to a third party. The information you provide will remain confidential and may be used for the provision of related services. Such information may be disclosed in confidence to agents or service providers, regulatory bodies and group companies. You have the right to ask for a copy of certain information held by us in our records in return for payment of a small fee. You also have the right to require us to correct any inaccuracies in your information. The details you are being asked to supply may be used to provide you with information about other products and services either from GoldCore or other group companies or to provide services which any member of the group has arranged for you with a third party. If you do not wish to receive such contact, please write to the Marketing Manager GoldCore, 63 Fitzwilliam Square, Dublin 2 marking the envelope 'data protection'

GoldCore Archive

© 2005-2018 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

6 Critical Money Making Rules