Here is the first of four interesting gold charts from Eric Hommelberg’s ValcambiGold. Starting with the daily chart, ValcambiGold points out:
Gold has been trading for quite some time below its 200 dma now and the question remains at what levels gold will trade at its 200 dma again. Over the past 10 years when gold was trading far below its 200 dma it always bounced back sharply not only towards its own 200 dma but way above.
The 200-dma now stands around 1550. There is still a lot of work to be done.
Last week, for the first time in a month, gold rose above its 50-dma (1307.91). The move was powerful and gold quickly moved above it by nearly 70 points. There is strong resistance at 1425 and then at 1580.
The next chart is the monthly chart. ValcambiGold says:
The monthly chart for gold is crystal clear. Gold has been sold off from its 2011 high straight into a severe oversold condition not seen since the beginning of this bull market in gold in April 2011.
Note the oversold condition, shown in the MACD section at the top of the chart.
Also note the RSI (near the bottom) has bounced up off of the “30-line.” The last time gold acted this way was way back in 2001 and then, gold moved up from the 250s to over 1000.
ValcambiGold’s analysis concludes:
…the sell off from gold’s 2011 ($1923) high into its 2013 low ($1179) has spooked many investors out of their positions, it seems however the bears are running out of steam so further downside pressure seems very unlikely here.
That’s my take as well.
When gold rebounds, as it appears to be doing now, the move back up will be dramatic.
The last chart is relative GOLD. It is derived by dividing gold by its 200-day moving average. ValcambiGold says the rGold chart has been very accurate in identifying the major tops and bottoms in gold for the last 10 years. They also mention the rGold chart has bottomed out again and it predicts a new high in 2014.
In the past, when gold peaked, more than 20% of all financial assets were in gold and gold shares. Today the number is under 1%. When this bull market finally tops out, it is hard to imagine how high the price will be. Jim Sinclair’s prediction of at least 3500 seems to be a very conservative estimate!
Last, but certainly not least, here is ValcambiGold’s GOLD & Historical Average chart. It uses John Williams (Shadowstats) inflation adjusted CPI inflation numbers to give you a visual of how far gold is BELOW the 1980 peak. Forget the peak (over 9,000) – gold is well below the 25-year “average” price.
These charts tell an interesting story. One that flies in the face of Larry Edelson’s warning that gold (and silver) will most likely re-test their lows, set earlier in the summer.
I want to address some of the main reasons Edelson is less than bullish at the moment toward gold. On August 5th, he wrote,
The latest rally early last week has failed, and now both gold and silver are moving lower again.
So the question now is whether gold will hold its previous low at $1,178, or move lower to test major support at the $1,050 to $1,070 level.
Silver’s major long-term support lies between $15 and $17.
If gold closes below $1,295.80 and then $1,262.50, new lows will likely be seen…
That is no longer the case, as you can see in the ValcambiGold daily gold chart. In fact, gold has exploded through its 50-dma and looks very strong now. Silver has jumped from a low of $19.27 on August 6, to over $23 today. Larry is spending an awful lot of time looking in the rear-view mirror. He should look ahead before he runs off the road.
Edelson continued with his Q&A on August 5th:
Q: Comex gold inventories are at or near record lows. Isn’t that bullish for gold?
A: Not necessarily. Think about it. Suppose you own gold at a Comex warehouse and you simply want to store it somewhere else. So you take your gold out and ship it to a private vault in Switzerland. The Comex inventories go down, yet your gold isn’t going back on the market. There’s no net change.
Or, suppose you’re a jewelry manufacturer and you take delivery of your Comex gold to produce and sell more jewelry. Comex inventory goes down, and your metal ends up on the market as supply, though in fabricated form.
In both cases, Comex inventories go down. In the first, there’s no net change overall in the supply of gold. In the latter, inventories are down but available supplies are up. They offset each other.
Bottom line: The fact that official Comex inventories may be extremely low means nothing. You have to analyze what’s happened to the metal to make the final determination as to whether it’s bullish, bearish or a net nothing.
This is similar to the manipulation discussion above, in the sense that way too many supposedly impartial analysts use low Comex inventories to conjure up a nice logical-sounding sales pitch.
But in reality, they haven’t done their homework, they’ve only looked at half the evidence — and usually their motive is, again, nothing more than to generate a nice commission off you by getting you to buy at almost always the wrong times and prices, and for the wrong reasons.
That’s not the way I read it. Gold is flowing into Switzerland for processing on its way to China and India. It is leaving Comex inventories and GLD and heading east, never to return again. Supplies are not up. Yesterday Bill Holter and I both addressed gold’s backwardation, which indicates that supplies are tight. There isn’t enough gold to meet the immediate demand.
The following article was posted on Economic Times Monday morning:
August 19 2013
Aug 19 (Reuters) – Britain’s gold exports to Switzerland surged in the first half of this year, Australian bank Macquarie said on Monday, suggesting bullion being sold out of exchange-traded funds may be heading for Swiss refineries before being sold on in Asia.
The UK exported 240 tonnes of gold to Switzerland in May alone, while its exports over the first half of this year totaled 797 tonnes, Macquarie said in a note.
In contrast, Britain exported just 92 tonnes of bullion to Switzerland in the whole of last year, it said.
“The UK does not have gold mines, so where has it all come from? The obvious source is the gold exchange-traded funds (ETFs), most of which hold their gold holdings in London vaults, and which saw huge outflows in 1H 2013,” Macquarie said.
“And why is it going to Switzerland? Two explanations make sense. One would be that investors have decided to switch their gold investments from ETFs to allocated deposit accounts, which are often held in Switzerland.
It added: “But a bigger factor, we think, is that the gold bars from ETFs have gone to Switzerland, where most of the world’s gold refining capacity is, to be remelted into different size bars and coins and then sold on end consumers, predominantly in Asia, specifically China and India.”
Gold ETFs – popular investment vehicles which issue securities backed by physical gold – posted their biggest outflows of metal on record in the second quarter. Data from the World Gold Council showed outflows of 402.2 tonnes of bullion between April and June.
Holdings of the largest gold ETF, New York’s SPDR Gold Shares, are held in allocated 400-ounce bars in the London vaults of HSBC, according to the fund’s website.
Edelson did not address this in his article. Where the gold goes IS Important. It is leaving our shores and leaving Western Europe on its way East.
Edelson may think that Western central banks have no need for gold, but when the replacement currency for the US dollar arrives, and it is backed by gold, they will sing a different tune.
To add a bit more to this discussion, I have highlighted a portion of an article that appeared on August 16 by Richard Dyson, Personal Finance Editor of The Telegraph:
Ownership of the world’s gold shifted further East during the first half of 2013, as Westerners dumped their exchange–traded holdings and, on the other side of the globe, Asian consumers responded to lower prices by adding to their hoards of jewelry and bullion.
This was the picture painted by the latest data from The World Gold Council, the mining industry trade body and research organization, which reported overall demand for gold 12pc lower in the three months to the end of June than in the comparable period for 2012. Demand for the metal is currently running at 83pc of its five–year average.
The WGC attributed the slump to the massive sale by western investors, mostly in the US, who own gold through exchange–traded funds (ETFs). These vehicles work by linking reserves of gold – secured in bank vaults in or around Western capitals – to shares freely traded on the world’s major exchanges.
In terms of the global movement of gold ownership towards emerging Asian nations, the WGC said: “The 2008 crisis caused a shift in the investment pendulum towards western markets with gold investment in the US and Europe reinvigorated as the crisis unfolded. A reversal of this shift will be a feature in coming quarters with demand moving from the West to the East as India and China cement their dominant position.”
-Richard Dyson, Gold goes East as consumers hoard bullion and jewellery, August 16 2013
The Devil’s biggest lie was to deceive people into believing that he doesn’t exist. The central banks biggest lie was to convince people that gold was an unnecessary relic of the past.