Summary: Gold we little
changed (Friday), now trading just above the range of most of the past
and just above its recent high of $1170 which it hit two weeks ago.
Activity in the gold market appears to be ordinary fluctuation,
mostly by day traders - there is no indication of increased interest
in the gold market..
here for a 2 year gold chart - click
here for a 10 year chart). ( Click
here for June gold and scroll beneath the chart for a
computerized technical analysis of the gold market.)
Based on the
latest weekly report (as of June 29), the number of long speculators
in the gold market was 330 thousand contracts, up 14 thousand from
the previous week.. There is no indication of any sustained significant buying. (Click here for actual figures)
(Click for actual figures for the years:
2002 - 2010, 2001, 2000,
The slow economy has
diminished the number of physical gold buyers which is reflected in the
latest demand figures
for physical gold. Demand figures for the 4th quarter of
2009 (latest available) show one of the sharpest declines in
demand in recent history - total demand was down significantly in
all categories - jewelry demand was down 32% while total demand for
all uses (including retail investment, industrial demand, electronic
trading fund (ETF) investment) was down 36%, a relatively huge
decline in demand, It
has been mostly speculators that have driven up the price (reflected
in the latest Commitment of Traders
A significant factor is the
outlook for the stock market since commodity prices have recently
been influenced by the sharp moves in the stock market. The
stock market has been overpriced in the extreme - now the price
earnings ratio on the stock market averages is no longer published
as it has been since 1936, a major change in reporting activity in
the stock market. As of the end of
available) the price earnings ratio on the S&P 500 was
85, one of the highest since records were kept
on the index in 1936. The stock average remains overpriced in relation to
earnings in the extreme, a very negative indicator since stock prices
ultimately depend on earnings. The ratio is
very high when compared to an historical
average of closer to 15 or 20 times earnings (click
here for a chart of past price earnings ratios). A
falling stock market is potentially bearish for the gold.
believe the economy is improving, but the encouraging indicators are
few and far between.
The number of total open contracts
now (as of yesterday, latest available) was near 601 thousand contracts
now at the record
2 years ago at almost 600,000
An important factor is that under
present economic circumstances, there is less money with which to
buy jewelry or to invest in commodities, gold included. This is
reflected in the low level of demand in the
latest reports. (Refer to the tables which show
demand in tonnes, rather than dollars to get a more
accurate picture.) Demand for jewelry which
usually represents about 70% of demand for gold was down 30% in the latest
reported quarter (fourth quarter of 2009).
In spite of the recent rally, a
resumption of the decline could potentially take the gold price down
significantly if the U. S. Dollar resumes its rise. Click for a chart
Gold, the most active contract (scroll beneath the chart for a computerized technical
here to put recent activity in a longer term
context. (Click here for recent futures
quote) ( here or here or here or here or here or here for 24 hour spot
The gold price could potentially
fall to near $500 in a relatively short time. As an example,
after gold rose sharply in 1979-1980 to $850 it was followed by a drop to near $500 in less than 2
months. It will not be surprising to see the gold price
take a similar loss in a short time (click
here for a long term chart).
Crude Oil contract (now the most active
contract) settled today (Friday) at 72.14. It was largely the rise in the Crude Oil price
which helped bring gold to its recent high levels - now the Crude
Oil has fallen back from last year's highs. Crude Oil is half of what it was a
Demand for physical gold was at its
highest during the bull market in stocks in the 1990's when public
interest in investment was at its highest and there was more money
around with which to buy gold jewelry. Since then demand for physical gold has
been mostly declining. Now that the global economy is mostly
slowing, it is likely there will be even less money available to buy
The number of total open contracts in the New York
gold futures market hit the highest in history yesterday (Thursday), at
605,792, over four times as many as normal and the highest
number of open contracts since the Comex began trading gold in
1975. The number of open contracts has since fallen back
but now recovered again to near its previous high.
The potential still exists for a large rise
in the gold price in the longer term if the U.S. Dollar
resumes its weakness. The potential exists for gold to rise possibly as high as $1,500 or even $2,000 or
higher if the gold continues its uptrend. (Under
almost similar circumstances in 1979-1980, the price of gold and
silver tripled, or more.) One significant
factor so far remains different - interest rates soared in 1979-1980
but that has not been the case now (at that time longer term
Treasury interest rates were over 15%, while the prime borrowing
rate reached 21%).
As the gold chart shows, the
gold price rose to highs not seen since 1980. The 9 day
relative strength is typical of other indicators as
well) It would
normally be overbought between 70 and 80 (although it could go
higher) and oversold between 20 and 30. Now (Friday) it is
at 53, still below its recent high of 91 (hit on November 25,
2009) and above its low in
2008 at 12.
Long speculators outnumber the
shorts by 61% to 12% (as of April 30, latest available).
The September U.S. Dollar Index was higher today (Friday), closing at 86.50, not
far from highest point in 6 months.
Any weakness in the Dollar may
help the gold price (although the Dollar seems to have potentially
found some support in its present range) which is still a long way from its high around
120.00 where it traded at in February 2002. (Click here for
more info about the U.S. Dollar Index and click on the "U.S. Dollar
Index" in the right column. Click
here for a longer term chart of the Dollar.)
The gold price is heavily influenced by
day traders in the futures market. Usually 95% or more
of the trading is done by day traders.
Because of the high volatility gold traders may consider the use
of gold options. A good place to get futures and options
prices is at the New York Mercantile Exchange, the largest and most
significant market for gold futures trading.
(Another good place for gold option prices is on this link - click on either
Call or Put in the far right column.)
The September Canadian Dollar settled today
(Friday) at .93.90.
The September Australian Dollar settled today
(Friday) at .83.50.
article is from Forextraders.com:
How high can gold rise?
As gold keeps breaking new records, and excited
traders speculate on the difficult future fating the U.S. currency
based in technical indicators, the fundamental factors behind the
trend remain clear, increased worries about the solidness of U.S.
public finances, the lack of any serious government plan to resolve
long standing issues related to the future of the social security
system, eroding credibility of the U.S. motto about a strong dollar,
and the general weakness in the fundamentals of the global economy
ensure that the told-dollar trend is likely to remain firmly pointed
to higher peaks for the foreseeable future.
Traders would prefer to get rid of dollars in as large
quantities as possible, but the lack of any meaningful substitute
means that market participants always hold more of the U.S. currency
than what is deemed to be prudent. Yet at the same time, neither
Japan, the European Union, or China show any willingness to create a
new alternative to the U.S. currency by encouraging the appreciation
of their national currencies, and given the enormous imbalances that
sustain the dollar's stays as the global currency, it is hard to see
how the USD can be dethroned by any of the favorite candidates.
Purchasing gold, on the other had, offers a fine
solution to the Gordian Knot by lumping them on the same side, into
the basket of worthlessness and placing gold on the other side, as a
store of value that thrives when uncertainty, insecurity, and fear
rule the global economy. And, when we recall the never ending
speculations about the dollar's demise, it is only natural that the
metal will find attention (regardless of the price tag, until a bubble
develops, and a long term downtrend is established. We are
apparently very far from that turning point, however.
Gold has some powerful dynamics behind its rise, and
it doesn't seem outlandish to imagine a target of 3000-4000 in the
next five years, if, as anticipated, economic activity goes for a
second dip once the impact of government stimulation and private
speculation and bubble-building lose their dominant effects in the
markets. We are firmly of the opinion the dollar will remain the
global currency in at least the next decade, even if it depreciates
somewhat further before regaining its value. It is very hard to
imagine Europe replacing the United States as the economic superpower
of the world, that potentials is only possessed by China. And
China is of course light years away from becoming a finance center,
with its extremely backward legal system, shallow but highly volatile
and unpredictable markets, and financial system at the stage of infancy.
The forex market will go through the rest of this decade in a state of
agitation, no doubt, but it may well turn out to be "sound and
fury", when we are able to reconsider everything with hindsight.