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Gold prices appear on verge of a breakout

Editor: Li Kun 丨CCTV.com

12-01-2015 15:26 BJT

By Sol Palha, founder of Tactical Investor newsletter

Demand for gold is soaring, according to the World Gold Council’s latest report, which shows that global demand for gold has soared by a whopping 33 percent.  Americans are jumping into the foray too. U.S retail demand for gold has surged to 32.7 metric tons, 200 percent more than the same period last year.

Additionally, Gold demand in China has surged by 70 percent to 52 metric tons.   And Europeans are loading up on gold.  Demand has increased by 35 percent to 61 metric tons.  But, why are gold prices not soaring?

Based on fundamentals, the dollar should have crashed long ago, the U.S. Federal Reserve has created more money in the last ten years than it has created in the last 100.  Fundamentals would have had investors jumping into energy and oil stocks, but those shares have tanked.

Until the moment oil crashed, all experts were screaming about a shortage of oil coinciding with surging demand in Asia. Overall demand in Asia continues to rise, but the same individuals, who predicted an oil boom are now playing a different tune. Instead of saying less oil, they are now claiming there’s oversupply. Oh, how fast they jump ship. 

Now, let’s take a closer look at the following charts, which illustrate gold demand is increasing.

 

Central bankers are busy loading up on the metal. The main buyers are Russia and China. Whatever the reason, central bankers appear aggressive to stock up on gold.  

India has joined the bandwagon as they are buying plenty of gold again.

Fundamentals look good, but gold continues to drop like a rock.

Fundamentals do not drive the market. They just provide you with a picture to justify your biased views. What drives the market is emotions, and some technical indicators have the ability to pick up on such emotional factors.  Crowd psychology is one of the best and least utilized tools when it comes to spotting the topping and bottoming actions. It’s not about timing the exact top or exact bottom. That’s left to fools who have nothing else better to do.   Right now, many people are embracing gold, but the crowd is still silent.  When the crowd joins the pack, then the situation will move from quiet to explosive.

The technical picture indicates that a real bottom could be close at hand.   In August, in article titled, “The Gold bull is dead,”  we stated the following:  

From the Technical analysis perspective, gold has one more leg down, but the last leg might or might not be too steep.   Every bull market undergoes a back-breaking correction, and Gold is no exception.

What’s next?

So far most of this has come to pass. The trend indicator is not bullish yet, so until it turns bullish, gold will not mount a significant rally.  However, if you loved gold at 1800, you should be shocked it's trading at $1100. The gold camp remains in disarray and despair is beginning to set in. This is the ideal time for a bottom to take hold. When gold topped back in 2011, the gold camp was jubilant and only envisioned higher prices.  Gold is not on the verge of another breakout yet, but it could be on the verge of putting in a bottom and that would be a move in the right direction.  To indicate a bottom is in place, gold may not close below 1050 on a weekly basis; failure to hold above this level could lead to a test of the 1000 range, with a possible further drop to $950. 

“A good idea plus capable men cannot fail, but it is better than money in the bank.” --John Berry


( The opinions expressed here do not necessarily reflect the opinions of Panview or CCTV.com. )

 

 

Panview offers a new window of understanding the world as well as China through the views, opinions, and analysis of experts. We also welcome outside submissions, so feel free to send in your own editorials to "globalopinion@vip.cntv.cn" for consideration.

Panview offers an alternative angle on China and the rest of the world through the analyses and opinions of experts. We also welcome outside submissions, so feel free to send in your own editorials to "globalopinion@vip.cntv.cn" for consideration.


 



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