There is no traditional way to play the gold market any more. It is full of contradictions. Let’s start with the fundamentals. Gold has long been the safe haven bet. When fear struck the stock market or the currency markets investors turned to gold. Now the situation has changed, stocks and shares are facing Armageddon with worldwide markets dropping 19% since the start of the year.
There is a growing list of self styled analysts warning of the start of a recession that will make the 2009 free fall look puny. Not so long ago there would have been a stampede into gold. Remember 2009 to 2012 ! Not this time round – yet.
Multiple Bottoms But Still No Progressive Upturn
We have had many instances of two or more bottoms that have not fulfilled their promise of a reversal.
I could go on and on about both the long and short term indicators that, in an ideal world were signs of an impending turn around, all to no avail, the bottoms keep recurring. Even the day traders are having a hard time playing the market, with Candlesticks, Elliot wave theory, uncle Tom Cobley and all contradicting each other.
Demand Firm but Mines Plummet!
In the meantime demand for the physical metal has stayed firm (the same goes for silver). While demand has stayed buoyant, the HUI, which is the index for mining shares, has plummeted.
Much of this inconsistency can be blamed on the futures market in the metal. Highly leveraged positions are bought that far out way the ability of Comex or other exchanges to deliver, bearing in mind that for every futures contract sold there is a buyer with the exception of options which expire.
Gold Suffers, Dollar Benefits
There is also the question of manipulation by government and banks. It is important to keep in mind that relative to other markets, gold, and even more so silver, are small markets and therefore considerable fluctuations can take place for modest amounts of dollars in play.
Once the province of the conspirator theorists, there now seems little, if any, doubt that manipulation almost on a daily basis is taking place. Gold and silver are in lockstep, if silver futures are sold heavily then gold prices will immediately also suffer, with the end result that the dollar benefits.
Staying Out Of Gold & Silver
The question now remains
- For how much longer will, or can, this last?
- Can the fundamentals of good investing come back into play for gold?
- Will the technicals that investors and speculators have grown to rely upon begin to reassert themselves?
- Will age old free market forces be allowed to hold sway again without interference from Yellen et al?
Meanwhile we have our physical gold and silver stash which is still just profitable and have no plans to add to it until the fundamentals kick in. When they do then the sky’s the limit.
Category: Precious Metal Investment News