Gold Monthly Chart 2004-Present
Gold Monthly Chart 2010-Present
Smart Money Shorts
I ignore short-term COT “smart money” warnings although I would prefer there to be fewer bulls.
For discussion of “smart money“, please see Investigating Alleged Smart Money Positions in Gold.
Pater Tenebrarum at the Acting Man blog pinged me with this idea: The only caveat remains the large net speculative long position, but at the moment this strikes me almost as a “bear hook” that is keeping people on the sidelines waiting for the “inevitable” pullback while the train is leaving the station.
With the 6-year consolidation over, there is every reason fundamentally and technically for gold to continue up.
So, be my guest if you want to time gold to COT positions.
Technically Speaking
Technically, there is short-term monthly resistance between here and $1566. Perhaps there’s a pullback now, but with technical and fundamentals otherwise aligned why bet on it?
The next technical resistance area is the $1700 to $1800 area so any move above $1566 is likely to be a fast, strong one, perhaps with a retest of the $1566 area from above that.
Gold Fundamentals
Gold fundamentals are in excellent shape as I noted in How Does Gold React to Interest Rate Policy?
Much of the alleged “fundamentals” are noise, not fundamental price factors.
Not Fundamentally Important
- Mine supply
- Central Bank Buying
- ETF analysis
- The ever popular jewelry buying in India discussion
Aso, gold does not follow the dollar except superficially and in short-term time frames.
Gold vs the Dollar
Many people believe gold reacts primarily to changes in the US dollar.
Last week, I rebutted than notion in Gold’s vs the US Dollar: Correlation Is Not What Most Think.
True Supply of Gold and Reservation Demand
It is important to note that nearly every ounce of gold ever mined is still in existence. A small fraction of that mined gold has been lost, and other small fractions sit in priceless statues in museums etc., and is thus not available for sale.
Otherwise, someone has to hold every ounce of gold ever mined, 100% of the time. That is the true supply. Jewelry buying and mine output are insignificant in comparison. We are not about to run out of gold as some gold shills suggest.
Mises refers to the desire to hold gold as “Reservation Demand“, that is the desire of people to hold their gold coins, bullion, bars, and jewelry rather than trading it for something else.
If we strike out jewelry buying, central bank buying, the dollar, and mine supply, what then determines “Reservation Demand” to own gold vs some other asset?
Faith in Central Banks
Talk of normalization was nonsense, as were various “Dot Plots” that suggested the Fed was on a major hiking cycle.
For an amusing chart of where the Fed projected interest rates would be in 2020, please see Dot Plot Fantasyland Projections.
The market did not believe the Fed, neither did I, and neither did gold.
Once again we are back to my central gold theme question.
Is everything under control or not?
Mike “Mish” Shedlock
not enough physical gold guys…
In what form would you recommend we hold gold?
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…”… the primary purpose of futures options and forwards is to expand artificial supply to keep the price from rising. In a wider context, the ability to print synthetic commodities out of thin air is a means of suppressing prices generally and we must not be distracted by claims that derivatives improve liquidity. They improve liquidity only at lower prices…”…
… “Not only are there other regulated derivative exchanges with gold contracts, but also there are unregulated over-the-counter markets. According to the Bank for International Settlements from end-2015 unregulated OTC contracts (principally London forward contracts) expanded by the equivalent of 2,450 tonnes by last June, taken at contemporary prices. And we must not forget the unknown quantity of bank liabilities to customers’ unallocated accounts, which probably involve an additional few thousand tonnes…”…
“In recent months, the paper suppression regime has stepped up a gear, evidenced by Comex’s open interest rising…
“The rising gold price has seen increasing paper supply, which we would expect from a market designed to keep a lid on prices.
The problem that I have with the theories about gold price suppression is that, given my understanding of economics, you cannot suppress the price of something except on a temporary basis and then that is at the cost of causing the price to move the opposite way once you relent on your price controls. You will be forced to relent sooner or later.
To illustrate this, consider. If you suppress the price of gold by issuing paper gold for example, that lower price will increase the demand for gold. Some of that demand will be redeemed as physical. For the next round, if you wish to suppress again, and issue more paper, again, lower prices more demand, more gold will be redeemed. Keep this up for very long and like the sorcerer’s apprentice things will get out of control as you will have expanded demand far more than the supply. You will have issued lots of paper that needs to be redeemed, and your gold supplies will dwindle and more and more people will find out about the mismatched position.
And then the dam breaks. The price fixers lose a fortune, after all they are just taking a short position by fixing the price lower. The the price shoots higher as investors take advantage of those with uncovered shorts.
This is why most price fixing is done by governments, after all, they dont mind causing resources to be misallocated using taxpayers money.
The only case of price fixing that can work for a sustained period of time I can think of is when you have a total monopoly and perhaps a monopsony at the same time. Then you can fix prices to whatever level you like, but keeping that level of power is difficult. I think that the closest thing to such an entity that is private is De Beers with the diamond market. Diamonds arent generic though, like an ounce of gold. I would say such control is simply not possible in a market with many suppliers and buyers with a generic commodity like gold.
So unless there is a truely massive price controlling conspiracy with huge numbers of actors all acting in concert, I find the price fixing theory of gold difficult to accept.
Nope@leicestersq , price fixing of anything (gold included) is very easy to do (as you rightly point out) with future options derivative instruments and an infinite amount of money as the Fed has. It is no “theory”, rather everyday practice repeated oh so many times including just before the 1968 London Gold Pool debacle. But no, sorry to say, it does not require any “massive conspiracy acting in concert”. No, just very few actors such as the still remaining 6 “bullion” banks and the US Fed = 7 individuals, probably less for everyday transactions.
The practical problem arises (as you rightly point out yet again, kudos for ya!) when push gets to shove and stakeholders demand PHYSICAL as is happening right now as we speak in ever greater amounts as EU member states are realizing their bullion in (supposed) BoE custody is not there for delivery.
The key to this conundrum@leicestersq are your own words when …” demand requires physical redemption”… as is beginning to happen right now by parties that were never expected or supposed to redeem an ounce of gold, such as (first) EU member states because of rough Brexit situation and everybody else behind them.
Alasdair Macleod clearly indicates that “the quantity of gold in Comex vaults eligible for delivery and pledged is only 2% of the 2,446-tonne short position”.
“In London there are only 3,052 tonnes in LBMA vaults (excluding the Bank of England), which includes an unknown quantity of exchange-traded-fund and custodial gold. Physical liquidity for the forward market in London is therefore likely to be very small relative to forward deliveries. And of course,the bullion banks in London and elsewhare do not have the metal to cover their obligations to unallocated account holders, which is an additional consideration.
“Clearly, there is not the gold available in the system to legitimize derivative paper. It now appears that paper gold markets could be drifting into systemic difficulties with bullion banks squeezed by a rising gold price, short positions, and unallocated accounts. …”
OR, the “paper gold” system also fails when for whichever reason the “infinite money source” (not really ´money´ just legal tender currency IOUs) runs out as a SUSTAINABLY credible means of payment or unit of account meaning (partial) dumping of US Treasuries as is also happening right now.
Perhaps there is one way in which they could have suppressed the price of gold for so long. You can really only do this if you can bring some supply into the market.
If there were insiders, a cabal, working to sell of all UK and US government gold for their own benefit for example, then they could do that, and the process of inveigling all of that gold from those states would appear indistinguishable from price fixing. You would be pairing up the additional real demand with the stolen supply you had brought to the market.
Such a scheme seems to me pretty far fetched I have to say. But sometimes outrageous things happen.
Actually my friend (our friend)@leicestersq you are correct for the third time in a row and that´s a LOT trust me.
Wow Sir, wow !!!
And no, I´m afraid that what you are suggesting is not “far fetched” at all cuz actually they´ve done exactly THAT meaning sold off LOTS of everybody else´s gold PLUS while actively engaging in paper gold price suppression so as to “prove” that Western CBs are in charge… while they are not.
So CBs are clearly in the worst of both worlds right now i.e. they´ve sold off or rented out or re-re-re-re-hypothecated and/or swapped and/or encumbered and/or compromised everybody´s physical gold with lots of claimees waiting in line undistinguishably from genuine owners… while they´ve continued to suppress the paper gold price thru future options derivatives… thus feeding such vicious cycle on itself.
And now what ?
Well, for one thing if we are reading ourselves all of this right here that means that everybody else that matters already knows about it.
So let´s just sit and watch the howling and moaning while the price of physical gold just keeps climbing as the CBs of this world keep printing our livelihood away with yet more baseless legal tender fiat currencies a.k.a. IOU paper.
Fair enough ?
I am expecting another push to $1600 or so and then one more push lower. I never trade on fundamentals but only technical analysis. However, we all know that thoughts differ on outcomes using either or both. I still hold some gold and silver so a higher push would be fine with me. I am planning on adding if my outlook is correct.
Recent events in the Middle East are guaranteed to raise gold prices. It’s as if the mullahs are long GLD.
Note: per experience, it is usually a bad idea to buy gold based on geopolitical news. These news-driven rallies are invariably short-lived and quickly retraced again. Better to keep an eye on macro-fundamentals (real interest rates, credit spreads, federal debt growth , money supply growth, etc.).
It’s quite serious though. Archduke Ferdinand.
The future for gold looked bright until Trump got elected in 2016. Most gold bugs probably voted for him but his policies have done nothing for gold. Until the end of his second term in 2024 gold will continue to flounder regardless of what else is happening. The gigantic US budget deficits will not matter so long as he is in office. After that, the deluge.
Gold is up almost 50% since its December 2015 low – I wouldn’t call that “floundering”. It is true that the election was initially perceived as a negative for gold, amid soaring stock prices, sharply rising bond yields and the pro-free market policies Trump implemented early in his tenure (such as cutting back regulations and the tax cut). But a lot has changed since then. For instance, he is deficit-spending like a drunken sailor and has started a trade war. Moreover, the Republicans no longer control the House. These are things that tend to lend support to the gold market. Anyway, I’m fairly sure gold investors would have no problem with gold continuing to flounder upward… 🙂
As an aside: gold is at or close to all time highs in almost all non-USD currencies.
I never pay attention to those ridiculous priceforecasts of $10.000/oz. Because of course goldshills or the silverpushers will repeat this over and over and over.
This latest outbreak however is significant of course, but I’m not convinced there couldn’t be a pullback within 9 months either. Everything is in a bubble, literally everything, including gold.
That shouldn’t be left out of the equation.
Gold is unique and everyone should have some, without a doubt.
And if geopolitical tensions should result in a war, who knows if the resistancelevels will be redefined.
And everything is NOT awesome as we’ll find out before the year is over.
The problem with the gold to $10k argument is that people rarely contextualise that event i.e. if the price of a loaf of bread is unchanged after gold hits that number then its a big deal for the holders of gold. If the price of a loaf of bread is 10 times what it is today then gold has underperformed inflation.
Folks… in order to find out the effective market price of an ounce of physical gold we´ll have to wait till EU member states realize that the hundreds of metric tons of bullion they thought they owned while vaulted in custody at the Bank of England for many decades actually is not available for repatriation right now no matter how many times her Royal Majesty visits the Old Lady of Threadneedle Street simply because it has been either sold with the idea of re-purchasing at a lower price (Gordon Brown´s strategy) in what became a “fractional custody system” of sorts… or lent out, swapped, re-re-re-hypothecated, or encumbered to many claimees now waiting in line … and then and only THEN…. the real golden showtime will start no matter what happens to the Euro or the US dollar or derivatives or the future and options market , or the Comex, or anything else coffee included so help us God (and gold)
What makes you think the sovereign and undoubtedly allocated gold held in London on behalf of other central banks has been encumbered? I don’t think that’s the case. So far the only country that had no luck in getting its gold out of London was Venezuela. Poland, the Netherlands, Germany, all got their gold without a hitch.
I’m quite certain the bullion banks use unallocated gold for fractional reserves type operations and imo that is bad enough. There could be plenty of trouble when a sufficient number of unallocated gold holders try to shift their gold to allocated status or get actual delivery (which is going to happen in a crisis situation).
So please show us the independent AUDIT will you ? Oh, I see, there´s this photo of HRM the Queen with gold bars around her, that´s the proof isn´t it ? How much is there, whose gold is it, and lots of always UN-answered questions that EU member states are RIGHT NOW asking themselves as we speak after Germany had to wait 7 (seven) long years as you say “without a hitch” (hehe) only to get back 38% of its BoE gold and without a single gold bar ever matching the engraved nomenclature and serial numbers of the original bars deposited in custody decades ago.
The 7-years wait and the brand new gold bars mean that the BoE did not vault any original German gold and had to go buy it at depressed prices thru the future options rig which will run out of physical gold to deliver to genuine depositors. And Germany´s clout is far FAR far larger than anybody else´s, mind you, so Spain or Latvia may not be as lucky.
The EU member states are now facing the enormous Brexit divorce “golden costs” which will overshadow anything else being negotiated.
“In London there are only 3,052 tonnes in LBMA vaults (excluding the Bank of England), which includes an unknown quantity of exchange-traded-fund and custodial gold. Physical liquidity for the forward market in London is therefore likely to be very small relative to forward deliveries. And of course,the bullion banks in London and elsewhare do not have the metal to cover their obligations to unallocated account holders, which is an additional consideration.
“Clearly, there is not the gold available in the system to legitimize derivative paper. It now appears that paper gold markets could be drifting into systemic difficulties with bullion banks squeezed by a rising gold price, short positions, and unallocated accounts. …”
I’ve never been a fan of drawing lines on charts and claiming that the past predicts the future. The same is true of past price movements limiting the movement of future prices within a band, UNLESS the fundamentals are unchanged.
That said, I suspect most readers would agree that the global economy is currently slowing down–the fundamentals are changing. Most readers would also agree that central banks are doing what ever they can to slow the decline, and in the process, creating a bubble in most financial/real property assets. There might be less agreement that the bubble is greatly exacerbated by yields/interest rates close to zero (not 5-6% as in 2007-8). Near zero, downward movement of yields/interest rates is increasingly constrained. Upward movement is increasingly likely–born out by statistics, history, and human behavior.
IMHO, global markets are primed to fail, massively and collectively. All it will take is a precipitating event. The only recourse is printing money.
“Either it’s the same old, same old engineered price declines in silver and gold that we’re all too familiar with…or some of the smaller traders in the Big 8 category rush to cover and book big losses for the very first time. This thought should be front and center in your mind.”
That is mostly nonsense
The shorts are almost entirely hedged. They have to be or they would have blown up being short the entire way from $250 to $1900. Same with silver from $6 to $40.
I suppose there are times when books become a bit unbalanced and/or they manipulate the market for small gains, but they are unquestionably hedged.
The idea that they will suffer huge losses if gold keeps rising is bullshit. So is the notion they will be “forced” to cover if it does.
Pure nonsense that gets repeated over and over and over.
The fundamentals for gold have been positive for decades. The problem is the way to make money is to guess what the idiot investors will chase after in the future and people are generally too dumb to buy gold.
Fundamentals for Gold were terrible during the Greenspan “Great Moderation” era.
Falling interest rates, disinflation, and little economic concerns are terrible fundamentals.
And indeed gold fell from 850 to 250
I agree with Mish – you may want to rethink this assertion. There were long stretches of time when the macro-economic fundamentals were terrible for gold. At the current moment they are not particularly bullish either, but they are certainly pregnant with possibilities and could flip to outright bullish in the blink of an eye.
Hi Pater, I’m interested in your comments, would you mind briefly explaining what fundamentals aren’t particularly bullish at the current time.
I subscribe to Ed Steer’s Gold and Silver Digest, he wrote this in his newsletter yesterday:
“the current record and unprecedented Managed Money long position vs. the record short position of the Big 8 traders…sans JPMorgan… still has to be resolved one way or another. Either it’s the same old, same old engineered price declines in silver and gold that we’re all too familiar with…or some of the smaller traders in the Big 8 category rush to cover and book big loses for the very first time. This thought should be front and center in your mind.
They certainly are in mine.
I mentioned about six months ago that it was my opinion that this precious metals price management scheme would end by the start of the new year and decade. That has obviously not come to pass. But with the DoJ [amongst others] continuing to breath down everyone’s necks over at JPMorgan, one would think that this event should occur in the not-to-distant future.
And as Ted has also pointed out on too many occasions to count, JPMorgan’s short positions in both gold and silver are about the lowest they’ve ever been — and that’s in the face of the record high commercial net short position in gold — and close to a new record high Commercial net short position in silver.
And with at least 25 million ounces of gold — and 900+ million troy ounces of silver squirreled away in various and sundry depositories in the U.S. and in the U.K…the potential for a double cross of the other Big 7 short holders [and every other short holder in the COMEX futures market] by JPMorgan, still looms large. But whether or not they’ll pull the trigger, remains to be seen.”
There is no point in worrying about JP Morgan or any of the other swap dealers and bullion bankers that take positions in gold futures. These are not directional bets – they are fully offset by long positions elsewhere (forwards, physical bullion, etc.). My conclusion from the relationship between positioning data and prices in recent months is mainly that the contingent of “speculators” has become larger, or has more firepower at its disposal than previously. This has shifted the range of “extremes” in net speculative positioning upward. We have seen something similar happening in several other futures markets, most prominently crude oil.
Is it just me, or did the Fed term repo operation stop expanding on 12/30/2019? Unless there is another operation ongoing that I am missing, the repos are just rolling over from now until 1/16/2020, at which point they start unwinding. Also, there is a pretty big divergence between bond prices and gold prices for the last month (bond price going down while gold price going up). What am I missing that causes so many people believe the Fed is providing ongoing support for the market until at least the end of Q1, 2020? Anyone have comments about this situation?
They will still continue monetizing $60 billion in t-bills every month until June…
Thanks. Also thanks for calling it “monetizing.” I guess the Tbills in that program that mature before June 2020 are going to be indefinitely rolled over so they are effectively permanent balance sheet expansion? I missed the detail on how that is supposed to work.
Still, if $35 billion twice per week of term repos roll off in the last half of January then that is still a net contraction in Fed supplied credit of $80 billion for this month, yes ($60-$140)?
I wonder whether the futures market based spot mechanism will significantly diverge from the physical market (30-50% premiums). If so, what would the bankers and their puppet governments do in response?
Any thoughts on the Euro’s demise? have you seen DB and CRZBY vs GS from 2008? Euro breaks due to any number of reasons, DB, German Elections, Italian Banks/bonds.. etc.. USD will fly, and possibly go parabolic as it looses it’s reserve status, probably to Chinese Crypto coin backed by the BOC.. then gold will see $700 to $450 imo in USD, not in other currencies. Crazy thoughts?
DXY 2-3yr bull flag calls for +25%
Bat sh*t crazy.
“then gold will see $700 to $450 imo in USD”
I didn’t quite follow, did you mean it would fall from $700 to $450? or is there a typo?
“USD will fly, and possibly go parabolic as it looses it’s reserve status”
Also, sorry, I don’t follow this either, wouldn’t the dollar fall as holders seek an alternative reserve currency?
make that 711 or 485… chart support lines, 1980 highs was near $800 lower blue channel, pink horizontal support is 485ish.. take your pick, all depends on DXY , USD premise.. of going up on Euro’s implosion,
Oh I see, thanks for explaining. I’m bearish on the USD, particularly if it were to lose its reserve status. Haven’t really followed the Euro much but if thats set for a fall as well, it bodes well for Gold.
does it? Euro implodes, rush to the best Currency… either USD or GBP.. .. and never mind if Crypto coins dump hard.. which are at the moment on a cliff edge… only 550billion in market cap.. 1/2 that goes to USD .. may see a boost in the dollar.. then +25 to 35% up in DXY doesn’t sound so crazy… then gold will fall hard .. in USdollars.. not other currencies
Gold is a currency as well. It’s also considered the next best reserve currency. If there was a major event such as the Euro imploding I’d much rather hold Gold than another vulnerable fiat currency. Didn’t want to argue, just my opinion. -:)
no worries, not here to argue, just throwing out the contrarian view, no one is taking into consideration
In a big crisis, like a demise of the Euro would be, USD is the place to be. Gold will be crushed, then go sharply up months later, after the US reacts to the high price of the USD.
Out of curiosity, where do you think investors would invest the dollars they buy?
It starts with run to liquid safety – US dollar. Then first investments will be in treasuries and other safe government paper.
Gold comes later.
Hmm, well if the Euro was imploding I would’ve thought European Bonds & stocks would suffer badly as well, They’d be chaos, I still think Gold would do well In that environment, particularly as the chaos stems from the demise of a Fiat currency. Oh well, maybe I’m wrong, I’ll have to be careful. 🙂
I didn’t mention European Bonds & stocks. I wrote US dollar (cash) and treasuries – definition: “United States Treasury securities are government debt instruments issued by the United States Department of the Treasury to finance government spending as an alternative to taxation.”
Sorry if it wasn’t clear that I mean US gov trasuries. I thought it’s obvious from the context. It wouldn’t make sense to go into USD to buy European bonds.
You misunderstood me. I understood you were referring to US Treasuries. I was suggesting that if the Euro imploded European Stocks & Bonds would be hit as well. That would be chaos & as such Gold would do well in such an environment.
So, what you’re saying is that the failure of the world’s 2nd reserve (fiat) currency would lead to a huge rally in the world’s premier fiat currency and the world’s premier hard currency would be ‘crushed’?
Just checking ..
Yes. Initially. I explained why above. Same exact thing happened during the last financial crisis.
Why rush to a currency and not rush to gold?
gold is priced in USDollars, … If you knew Euro was going to implode, and you had Euro cash, and needed liquidity USDollar would be the go to.. Trillions of dollars cashing out into USdollars, would force it up.. imo, and gold down
I agree the dollar would go up against the Euro. So would Gold. ( in my opinion)
I know you don’t like lines.. but some traders do.. EURUSD
oh.. and if the market overall dumps.. and people go to cash .. again DXY goes up
DB vs CRZBY vs GS (Deutsche Bank vs Commerzbank AG vs Goldman Sachs) from 2008 .. is that Euro safe?
The last time the euro was in trouble, gold basically went parabolic against every currency, including the USD. It is unlikely to be different next time.
https://finviz.com/crypto.ashx here goes the crypto space.. USdollar gets a boost.. crytpo to cash? US cash?
If the Euro fails, there will be huge uncertainty and a lot of failures. Investors will want to 1) be as safe as possible 2) stay liquid 3) be ready to invest once the dust settles. USD is the best option in such scenario.
And yet, last time investors seriously worried about the euro blowing up, gold went from $900 to $1900… the USD strengthened as well, but certainly not to the same extent.
That is a bit of a stretch don’t you think? Gold started its uptrend in 2001 and tripled in price by the start of the financial crisis. Then the scramble for cash pushed USD up and gold down. Once things calmed down a bit, gold continued the trend started in 2001 all the way to $1900, but the initial move during the crisis was clearly into USD and not gold. Exactly as I described in one of my previous comments.
Lets do a little what if
Lets say
Gold = Euro 1396
Gold = $1550
Euro/$ = 1.11
Some event, lets say Germany announce they are going to exit the Euro & revert to Deutsch Marks.
Funds flood out of the Euro, Euro/$ collapses, to say Euro1 = only $1 now.
The Euro Gold price, by virtue of the maths is now Euro1550. Its shot up instantaneously taking out all previous chart resistances, and no-ones bought any Gold yet! We know what chartists would view of that. European holders of Gold would be very pleased with their Gold holdings and I’d suggest they wouldn’t be very inclined to sell, not even to take profits. Not until some semblance of stability ensues.
The Gold price has lately been highly correlated to the amount of Sovereign Debt trading at negative yield-to-maturity.
Given the hopeless state of government finances throughout most of the developed world, this figure can only be expected to grow indefinitely (until complete failure of the current debt-based, fiat monetary system occurs) and the price of Gold along with it.
At times gold is correlated to the dollar, negative interest rates, and likely coffee.
Ot times gold is inversely correlated to the dollar, negative interest rates, and likely coffee.
On average it is what I said, a measure of faith in central banks.
So far there hasn’t been any major event that’s triggered a surge in the price of Gold, only the whiff of inevitability. The Dow to Gold Ratio is still historically high at about 18.75, and the way the prices are moving that ratio doesn’t look as if its going to widen any more, even if the Dow continues to edge up.