Has Gold's Downward Trend Ended?

Gold’s recent downward trend may have ended last week after gold closed moderately higher for the week (gold +0.03% and silver +1.75%). The performance was impressive considering the continuing steep declines in stock markets (Nasdaq , DJIA, S&P down 6.1%, 6.17% and 7.03% respectively).

Gold’s outlook remains extremely positive especially as big money interests are once again realizing the safe haven attributes of the yellow metal. Both the Financial Times and the Wall Street Journal reported (see commentary here) how large investors including hedge funds are buying gold as they believe that the central banks huge money printing will lead to significant inflation in the coming months that will see paper currencies depreciate in value.

In this climate, western central banks are increasingly reluctant to sell their gold reserves and non western central banks with large dollar reserves are looking to diversify into gold. Zhang Guobao, Head of the Chinese National Energy Administration, said today that China should use part of its nearly $2 trillion in foreign exchange reserves to buy more gold, oil, uranium and other strategic commodities.

His statement was echoed by similar calls by Fu Jun, Vice Chairman of All-China Federation of Industry & Commerce who said that China should invest and diversify the world’s largest stockpile of forex reserves in gold, rather than in U.S. Treasuries to seek higher returns.

“We don’t need to buy more Treasuries as the returns are low, whereas if China buy copper and gold, the annual returns could be as high as 10 percent,” Fu said.

With supply and demand already tight, official Chinese demand could propel gold to far higher prices.

click to enlarge images

Comments

[Sakata:]

Speculating for a moment, let us suppose that 10% of all the gold every mines was available for purchase by China. That would be about 14,000 tonnes, or 450 million ounces. Let's also suppose that they decided to dump $2 trillion dollars of US Treasuries and buy gold with that money. They would have enough money to pay around $4500 an ounce for that 10% of gold.

These number probably won't happen. But China is not the only player in the game. $4500 an ounce doesn't seem to farfetch when looked at in these terms.

Mar 09 08:40 AM

[David Bicch...:]

I predict however a decline today and tomorrow in gold prices... according to my model!

Mar 09 08:44 AM

[Spartacuss:]

Well, something has to give! I detect an unwarranted expectation of market bottom and a juicy rebound.

Most people don't realize just how bad the situation is, and I am talking about how the dollar will vaporize starting with negative real yield on the long bond followed by horredous inflation. Capitulation is imminent and with it gold and silver will soar. Until then the powers are getting really antzy over whether to continue to buy the bond.

Mar 09 09:47 AM

[Cesato:]

Mark: I love your article, once again you showed a strong ability to put the market in prospective. I'm contibuting less to this blog than I used to because it became a controversial blog, rather than a sharing blog, just because bull don't like bears, Republicans and Democrats don't like each other, vote seekers score based on findind a place in the commentor's list rather than respecting contrarians perspective, some so called investors defend their strategies as if everyone else's view was foolish and in the very end everyone is just 50% right all the time. Only the market proves investors right as time goes on. You always go with the trend giving the market the benefit of the doubt and that is as fair as it gets. Fundamentally I believe (READ I BELIEVE) the real test will come at USD 988, under which a broad consolidation range could be expected to continue even longer than expected, it may not change until when fundamentals and/or technical patterns drive the price into a less volatile environment where panic is not the investment/trading strategy but a real belief that Gold is the right place to be, not because of wishful thinking imposed by physical Gold holders. I'm bullish long term, just to clarify, but I give bears a place to speak up and discuss their view as long as they are sensibly analyzed.

Mar 09 09:56 AM

[przem23:]

lol, i think someone took a dump of gold just about now


On Mar 09 08:44 AM User 372414 wrote:

> I predict however a decline today and tomorrow in gold prices...
> according to my model!

Mar 09 10:33 AM

[GMiki1:]

It did look as if gold was done correcting, but I guess not. I do want to buy some (more) ounces, so it's okay. Though a few dollars here or there isn't a dealbreaker or maker.

Mar 09 10:51 AM

[mr freddo:]

It seems to me that gold should have taken off to the $1200 level considering the drop in the stock market over the past month. In this deflationary environment, gold may be stuck in a trading range but is at least retaining value while other assets deflate.

I don't think gold will jump until we see a whiff of inflation. Maybe that has already started as oil has moved up and so has copper. For inflation to spark, we need to see a glimmer of hope in the economy. Until the financial system is fixed, which is nowhere near happening, we are stuck in this holding pattern.

Mar 09 11:53 AM

[Gold n Stuff:]

I like gold, too, but this interesting, short article suggests some more short-term selling:

www.greenfaucet.com/pr...

...sentiment may still be too bullish.

Mar 09 02:02 PM

[mauijeff:]

The GLD ETF has created a wonderful derivative to sell gold that does not exist to satisfy the demand of gold investors. It is may opinion that the GLD ETF does not own anywhere as much gold as it claims. It leases it's gold out and has leases on yet other gold. GLD could not settle it's gold account without having to claim gold already claimed by others. So it's all a big scam (GLD was set up by J P Morgan) with the allusion that GLD is selling actual gold. If the spot price of gold represented the actual price of buying physical gold it would be much higher then the COMEX paper manipulators are pushing.

Ask yourself a simple question. If all the gold contacts in the GLD ETF were settled, what would gold cost per ounce?

Mar 10 04:43 AM

[5142152-337:]

Mark, thanks for continuing your terrific articles!

Cesato, very nicely said. You are correct!

mr freddo your points are well taken, thanks.

MauiJeff, lets face it, the paper gold (and silver) arena is nothing but a scam, period. There is no gold, or not sufficient quantities to cover the contracts.

Kinda like Fort Knox. Oh, yeah there's gold there. I have some choice land to sell you, or rent, even. It located under a bridge...really choice location for "getting around".

To all who need to be told: Buy PHYSICAL gold and silver NOW. You will cherish the fact you made the decision, very soon!

Mar 10 07:27 PM

[capt Brian:]

From the BRIDGE


PUMP AND DUMP, today, with a few sidways comments, the market literally flies up 300 ponts +, while guess what...

CDE was the only PM stock (IN MY LIST) OF 20 OR SO] to gain ground today. Gee, my last post said I JUST bought a buncho of CDE. Oh well, the rest of the market seems to think, that somehow, while we were sleeping, Bernakeeee babeeee, and his motley crew, solved all our problems last night. (I don't think so). Oh well, go buy your stocks. Citibank is now okay, BAC is okay, and the whole durned dratted mkt that was down so many days in a row, was simply wrong, the market and economy is just fine now, and it only took Obamma 50 days. Wow, whatta guy.

Go read my last post, and hunker down....This thing is just getting started. There are more Madoff's, AIG's, GE's GM's that somehow convinced everyone this morning that all was okay in the world. Don't you believe it. Pain to come.

btw Did ya see the new govenors mansion in Illinois...

The State Pen... hahahaha

You get what you vote for.

Also Obamma just penned into law, that any federal projects have to be manned by Union labor. (thank you for your votes unionites) Pay back time...

Happy listening to the news. gads
Capt Brian

Mar 10 08:38 PM