Is it Time to be Buying Gold and Gold Shares?
Excerpts from GLOBAL WATCH: THE GOLD FORECASTER
by Julian D.W. Phillips. June 26, 2009
This is a snippet from a recent issue of the Gold Forecaster with Subscriber-only parts excluded.
As we thought it would, gold has fallen back to the low $900’s and begun rising again. Should we be buying? If only life was so simple and we could say to you buy at this price and sell at that price. If we did you can be sure the price would not quite reach the height nor reach the low price. It would almost reach there or overshoot leaving you wrong footed, as most people are. So what do we do?
Perhaps it is about “feel”, but ‘feel’ comes from understanding and from paying attention. In turn this comes from understanding a far from simple formula when it comes to gold and silver. These markets react to monetary issue, to confidence factors and the broad macro-economic events. They react to macro-economic and monetary uncertainty. Measuring this accurately is only part of the story. One has to measure the different types of investors and their perceptions of when to buy and sell. Now sum all this up with the correct weightings and you then add the usual demand and supply factors that one traditionally uses in metals markets.
In this piece we look at the short-term picture and why the gold price fell to current levels and why it should rise again. [When is for Subscribers only]
Currently the market is under the complete control of short-term traders on COMEX. They took the price up from the low $900’s to $985+ and have taken it back down. And very nice indeed, as they may have made $100 plus provided they picked the bottom and the top? Most don’t pick the top or bottom, even if they have done it once or possibly twice before. We are told that only 52% of trades succeed. We at Gold Forecaster believe the greatest investment success is made by investors who play the longer term and buy and sell only the major moves [30 – 50% price moves]. They’re in it for the longer term, usually. That’s why people have trusted their Pension Funds more than playing the market by themselves. Pension Funds have to play for the long-term because they have long-term obligations. But in this scene we’re watching the ebb and flow of short-term traders driven solely by the Technical picture, both of the precious metals and the U.S. $. But now that the prices have run both up and down they are left following the U.S. $. This is hard on traders, because both the € and the $ are weak, so why measure one against the other?
However, it will soon be time for the long-term holders of gold to make their move. Currently they are not heavy sellers so don’t expect the gold price trend to change. As buyers they are currently slowly accumulating and there have been recent sellers, but not in such volumes as to make the gold price rise or fall. They are biding their time for news that will trigger more purchases. Once you see a 10 tonne move, either way, in the holdings of the gold Exchange Traded Funds then you will see their influence come to bear. Which way will they go?
It will take a forceful trigger to get the precious metal markets to move significantly one way or the other. We will have to wait for this market to tell us because it could go either way.
The Geithner/ Bernanke duo are expressing confidence in the progress of the bank saving and credit easing measures they have put in place. They believe that the U.S. will recover quicker than Europe. We believe that China will recover quicker than both. The demands that China will have, are more pertinent to gold and silver than those of the U.S. and Europe. Gold and silver will react more quickly to the recovery in China than elsewhere. This is because the rise of China is unsettling for world investors who see the strains continuing to affect their investments in the future. Communist leader calls for the buying of more gold by China are not the same as government calls, but do tell us the way the gold tide is going there! The strains China will place on the $ and the € are already a matter of public debate. Remember it is not economic recovery that will cause gold to fall but the increasing of confidence in the global currency and monetary systems, if it comes? The stresses felt from July 2007 will return, unless convincing systemic reform is instituted.
So a further gold price rise looks as though it is already up wind of us. When will this kick in? The question now is, not one of trend, but of immediacy. We think we are moving to a point where the gold price may hang around $900 but then, where and when. That’s if all remains quiet on the currency / monetary front it could take a while still. Being so near to the bottom now and in a world where dramas can appear almost overnight we prefer to be in the right position now and have to wait a little bit for the rise to begin, rather than be out and have to buy on the rise. That rise may well be quicker than we expect. With the short-term traders bringing the gold and silver prices back down to where they last took off from, they are ready to open new positions. You can be sure that at the first sign of volume purchases of the shares of the gold Exchange Traded Funds the short-term traders will storm in again accelerating the rise and heightening it.
To answer the big question ‘when’ we have to look at the old and new sources of demand…... Subscribers-only
Having said that, it is crystal clear that when the gold and silver prices take off they will do so rapidly, so we can be caught off-guard easily. This time it may well go further up the price ladder than ever before?
© 2009 Julian D. W. Phillips