Hello all you XJO chartists. Ive never posted this before, but you seem an intelligent crowd.
There has been a bit of chat about gold. The influence of the situation in Russia down Mexico way and all that as a determinant of gold price trends.
I like to do my homework and am a bit of an economiuc geographer and survived a degree in Economics and Finance in the days before dumbing down and the MBA, which is a tenderfoot badge for non E&F people. You know opera highlights without the whole opera, in a cheap sleeve for the masses.
Anyway, we cut our teeth on some simple concepts like supply and demand analysis, in first year among a lot of other things.
Dug up some interesting data on gold. Total physical gold market is about 3,800 metric tons a year with a gradual growth trend as would be expected. The Chinese were allowed by their regime to buy gold from about 10 years ago. They now make up a quarter to a third of the market for physical gold in the longer term.
2014 is now getting along and we can look back to a pattern with a huge dive in gold prices last year, 2013. Why? You hear a lot of theories. But I came across one amazing fact the other day. ETF's for gold around the world, the ones who hold gold on your behalf, sold a massive 1,200 tons of gold into the market as customers resumed their cash. Why? Well gold was falling and the US stockmarket was rising fast fuelled by a huge amount of new fiat money created by the Fed and passed into the top echelon of US banks. If you know what has been going on over there you will know the mechanism, but I wont say too much as I value my health a bit longer.
Holders of gold deposits sold and bought rising stocks. Simple. Why would you do anything else?
That into a normal physical market of 3,800 tonnes a year while all the usual suppliers like miners continued to sell normally in to the market. Id call it a flood. Naturally enough the result of massively increased supply and samish demand was a radical resulting fall in price.
The gold price recently bounced at 1180 and did a double bottom at that level. Why? Well, for one thing the Chinese can spot a bargain when they see it and have the savings to buy. The average chinese saves 40% of income.
The selling from much depleted ETF's has dried up and they are now net buyers again. Not as big as before but it doesn't matter.
Marginal mines are closing or have closed, new mines are being deferred in response to the price and capital expenditure by miners has been slashed to the bone.
Same demand. Much less irregular supply. Net result recovery in prices toward longer term equilibrium level. Ukraine or no Ukraine, the market had a central tendency and a long term uptrend and the gold price is returning there. The world has many sources of turmoil and the Ukraine is little league compared to some but it could blow up in a big way.
The gold price may well overshoot the longer term line, but that is normal.
Increasing awareness of the devaluation and untrustworthiness of the creators of fiat money and a desire by a sufficient proportion of the affluent including the female of the species, to have portable hideable wealth with the high liquidity of gold and the fact that gold never rusts or tarnishes, is quite malleable and looks good in jewellery will sustain the physical gold market.
My perception is that the gold price has a good way to go up before it reaches a more or less equilibrium level. It isn't being pushed up, so much as responding to the force of upward gravity just now. Supply and demand in the physical market. The flood is over. Such events do not occur often. Caused mainly by the crazy money creation by the US Fed and European central banks, like someone redlining the engine to try to compensate for a very slippery clutch.
Better to fix the clutch plate, but they are not too sure where it is. Under that boonety thing somewhere?
Thanks to the World Gold Council for some interesting statistics.
(20min delay)