Gold's Bullish Trend Remains Intact

By Shivvy Arora

Despite a recent pullback, gold continues to give out a strong bullish message.

Think about it in logical demand and supply terms. The total supply of gold doesn’t alter much. In fact, it only grows at about 1% a year. Meanwhile, demand has been rising as investors flock to the yellow metal as an inflation hedge. This means prices will rise.

Take a look at the chart below. It tracks gold prices in sterling terms (black line) for the past five years. You can see the sharp upward trend from 23 Oct 2008 to 20 Feb 2009 as its popularity started to soar. It gained an impressive 50% during this period.

Despite a recent pullback, gold prices will rally

It then hit a peak at £680/oz (circled) and has fallen since. But this pullback is not the end of the bull market in gold. The fall that we see on the chart is more to do with the strengthening of sterling against the dollar. That, and the fact that investors moved out of gold and back into equities as markets recovered.

But gold prices haven’t gone far enough to reverse our bullish stance. In fact, the current trading range of £520-£600/oz is a decent entry point for new investors. However, look out for a break below the level of £500/oz, which could undermine positive market sentiment.

Almost everything is in place for a new surge in gold prices. The threat of inflation looms large. A rise in crude oil prices triggers the same concern, providing support to gold. And the equities rally doesn’t have legs – as soon as it falters, you’ll see investors again piling back into gold.

All that needs to happen for gold to start rallying in sterling terms is for the pound to start falling against the dollar. Given the state of the UK economy, this really isn’t that difficult to imagine.

Comments

[one eye:]

A currencies strenght has a lot to do with the Strenght of the Country's Economy. Having said that, If the dollar is to fall, what part of its Basket will Rise?

Do you expect the Euro to rise, it is a basket of some very weak currencies, 37 all told? The Yen, where they are worse off than the rest of the world? Or will it be the Pound whose associated Economy is showing some signs of Life?

What happens if the Pound continues to rally? How Far Down Does Gold Go?

Jun 30 11:01 AM

[one eye:]

I gather the Positive signs coming out of the UK have managed to elude you. Try BBC occasionally, you may be surprised.

Jun 30 11:03 AM

[No Eye Deer:]

I gather the Positive signs coming out of the UK have managed to elude you.

Exactly what are they.

A government that is borrowing 1 pound in every 4 it spends. A government that has cancelled it spending review until after the election in 2010. This leaves all government departments without any budget for the financial year 2010/2011. The good news it means the opposition cannot beat them up about their spending plans. A government that produced a growth forecast for the year that was found wanting by official figures within 48 hours. A government that forecast fall in GDP of 3.5% for this year. Latest estimates place the fall in GDP as high as 4.9%. A government that seems to produce growth forecasts that beat all other forecasts for optimism. Many predicting public sector deficit touching 14% of GDP. Personally I think 14% is on the low side. A government that has allowed the public sector to pass 50% of GDP.

A country were the entire income tax collected from a workforce of nearly 30 million people does not cover the welfare bill. Many millions in the UK are defined as economically idle. Benefits in the UK may seem low. When you understand how the system works people on welfare can earn sums in the region of £30k.

A government that is using a strategy of political traps. So even if they lose the next election they will make cutting public spending a political nightmare.

Seems the market is gambling on a conservative government being elected. Once elected it will guide the public finances towards a path of sanity. First these guys are not thatcher. Even if they win I doubt they could stomach the pain required to fix the finances.

You must also understand the hatred for the conservative party in the UK regions. We have the real possibility that the next elections could produce a hung parliament. No party with overall control. No party able to force through the cuts required.


The number of MPs in parliament is 650. For a simple majority it would mean the conservative party winning 326 seats. In Scotland, Wales and NI I doubt the conservatives will get more than 2 MPs. Thats out of 117 MPs. If we take these MPs from the total the tories will need to win 326 seats from 533 English constituencies. Opinion polls though showing a conservative lead, the lead disappears when you move north into the regions. So a hung parliament is a very likely scenario.


The UK economy is in serious structural trouble. Everyday it is getting worse.

I would also take what ever the BBC says with a bucket of salt.

Jun 30 04:03 PM

[one eye:]

I don't know what the past has been or what Politicos think its going to be But I know that a Closed Car plant has reopened because of increased demand.

Granted its only running 2 of the 3 shifts, but you take the little things which are current VS the unknown whatever you want it to be.

This is the news within the last 2 weeks.

But then, since the UK's Parliament is at odds within itself, I ignore the Negatives broadcast in the Bid for Power.

Jun 30 04:27 PM

[No Eye Deer:]

When a recession hits people start saving. As always people do things at the wrong time. After a while there savings start looking healthy. Maybe they could afford a meal out. That holiday is not a big deal. A car.. Well the accounts don't look to bad. A few pounds in the bank starts to give people confidence.

The prob is paying back that government debt. All that debt means growth will be slow. To get finances back on track means big cuts. Thats means being very mean.

UK, is living it large on other peoples money. Deficits reaching 18% of GDP.. Is that good for sustainable growth. Debt taking 20 years to pay back. Thats based on overly optimistic growth forecasts.

Enjoy your green shoots.

I'm sitting on the sidelines.

Jun 30 06:21 PM

[Ryu Mei Co:]

Always expect the unexpected.

Everybody (almost everybody) "surmise" the gold will surge base on some clever reasons, but the funny thing about the market is that it always does not meet majority expectation. For example oil was expected to go up to 160 a barrel last summer, it actually went to 147 and tanked. So, you expect gold to surge, I will say how high?

The demand for Gold are all in paper, and the actual demand for the physical Gold is not as high as everybody expected. It was all hype and over-expectation (just like oil).

The best thing is to listen carefully where China is heading with their US Dollar currency and India's demand for Gold. I wager China is backing off making noise on USD, and the Gold trade for the time being is over. Inflation maybe the reason to buy Gold for most people, but we have to think of when is the inflation going to come? Like I said in the beginning expect the unexpected, if you expect the inflation to come soon, I expect it may not be here till next year or 2.

Jun 30 10:19 PM

[datadave:]

"Inflation looms large"

Snort! My GLL is doing well thank you. Mid summer? Maybe GLD will be down far enough to buy again.

Jun 30 10:58 PM

[one eye:]

No Eye: There are no Green Shoots in the US, Tesco has seen some improvement but nothing to cheer about.

As far as I'm concerned, its more a matter of 2010 than 2009.

Ryu: China isn't backing off. As a matter of Fact, it has agreed to trade with Brazil in their own Currencies. It has reached a similar agreement with Hong Kong, implementation has yet to be announced. I do not doubt there will be other announcements.

As to your assessment on Gold, If its as accurate as the One on China, I guess its time to start buying vigorously.

Jul 01 04:19 AM

[I need more...:]

There are 10-20 articles every day, day in day out, shilling gold.
If it goes up, the headline is " See, I told you to be patient, now watch this baby rocket"
If it goes down, we trot out the ever popular" Buy the dip".
Beyond boring.

Jul 01 07:25 AM

[AndrewBaker:]

Gold good, UK bad.

Gold will go up because it's a store of wealth that can't be easily manipulated as can fiat currencies and stocks.

The UK is headed down by its own admission. Public spending and borrowing will all have to be paid back at some point, and that point is many many years in the future, whilst right now tax receipts are deteriorating at a great rate. They have the same problems with housing, jobs and bad debts, personal and banking; and a government incapable of telling the truth (but very capable of claiming their individual expenses).

Regardless of sterling, which is heading down, especially with their quantititive easing program, gold will be king, at least over the next few years whilst the politicians and their banking cronies wreck the normal economy.

Jul 01 08:55 AM

[Francis Sch...:]

Gold is REAL Money...maybe the time has come to run a Top 10 of fiat currencies against Gold. No doubt one will have to include the Pound, the Dollar, the Ruble, the Euro, but also the Swiss Franc and the Yen..

Jul 01 09:08 AM

[TurtleTrader72:]

I have always stated that gold is more of a currency investment than it is a commodity. The huge interest in gold is a direct result of the decreasing buy power of the US dollar. Therefore, I still think that gold has some room to run to the upside and that is specifically becuase the US dollar has shown no indictaion of it reversing its downtrend. I say this because the recent trading activity in the US dollar appears to be forming a symetrical triangle pattern (in the weekly charts) and does suggest a continuation of its existing downtrend at least over the short term. In addition, you can notice a large inverse head and shoulder pattern developing on symbol GLD which normally is a bullish pattern. If GLD can break its neckline at around $97 (with strong volume) we could see a quick rise to $105 if not more. However, if GLD breaks below its intermediate low of $84.92 we could see a large reversal in both the US dollar and gold. But until that happens you have to stay with the trend and be bullish on gold.

Jul 01 10:08 AM

[one eye:]

UK, housing prices Up., US, housing prices Down. Pound Up, USD Down.

Earlier this year, Pound around $1.40, now $1.65.

This is a Fact. Live with it.

Jul 01 10:11 AM

[bricki:]

There are several factors in the demand for gold. Surely one of these is economic uncertainty, which we have had a very swell dose of recently. This of course will have short term impact as out and out panic is usually a short term phenomena. This will cause a spike in the price of anything, and in this case it is gold. Whether this is over or not is questionable. We might see retracement the upside, or some sideways action, or even some continued downside. Who can say?

But the secular trend is immutable. Fiat currencies rarely appreciate in value. Inflation is inexorable, and we are likely to see a good stiff shot of it over the next decade or more. This is why accumulation of gold is a damn good idea. But think about doing it in a dollar cost averaging way. Don't be a sucker who piles in at the peak.

Jul 01 10:19 AM

[Trent Hauck:]

See despite that fact that the fundamentals should indicate that could should go higher, I can't see it happening. Could it be gov't suppression, because they don't want to stockpile gold if its at $1500? Can't really answer that, but I don't see gold breaking out, it only becomes interesting if it falls from here in my opinion. GLD is flat over the last year and down in past few months.

Jul 01 11:55 AM

[joevans:]

Gold has been an item of value for 8000+ years,
Inflation is the only way that to-days borrowings can be repaid in the long term, this depression will take at least 10 years before we are back where we were a year ago.
According to the Fibonacci method, we have had the third upturn for gold, so two more unturns to go.

Jul 01 03:50 PM

[Mark123:]

Your BBC must be like our CNBC..... "full of crap" mouthpiece for the government


On Jun 30 11:03 AM one eye wrote:

> I gather the Positive signs coming out of the UK have managed to
> elude you. Try BBC occasionally, you may be surprised.

Jul 01 03:54 PM

[dcb:]

I don't know the last time you went shopping, but I am seeing the increases quickly. year over year not so much but that was at peak boom. for the extent of the crisis I can safely say I haven't seen my bills go down, but in fact they have increased.


On Jun 30 10:19 PM Ryu Mei Co wrote:

> Always expect the unexpected.
>
> Everybody (almost everybody) "surmise" the gold will surge base on
> some clever reasons, but the funny thing about the market is that
> it always does not meet majority expectation. For example oil was
> expected to go up to 160 a barrel last summer, it actually went to
> 147 and tanked. So, you expect gold to surge, I will say how high?
>
>
> The demand for Gold are all in paper, and the actual demand for the
> physical Gold is not as high as everybody expected. It was all hype
> and over-expectation (just like oil).
>
> The best thing is to listen carefully where China is heading with
> their US Dollar currency and India's demand for Gold. I wager China
> is backing off making noise on USD, and the Gold trade for the time
> being is over. Inflation maybe the reason to buy Gold for most people,
> but we have to think of when is the inflation going to come? Like
> I said in the beginning expect the unexpected, if you expect the
> inflation to come soon, I expect it may not be here till next year
> or 2.

Jul 01 06:02 PM

[dcb:]

If you wan to sit tight and make sure you don't get burnt gold is a god say to do it. if we drop like a stone and emerging market currencies begin to tank again they buy to protect themselves. if the dollar drops it's a good hedge, and if we have future inflation it is OK. I currently look at key support at 90 (gld).

I can't figure out what is going on in the markets with so much government iinvolvement and manipulation. it may be a failry safe place to ride things out until someone decides to let the market actually work the way it should.

Jul 01 06:06 PM