Six Important Gold Price Indicators

Here are six things I'm personally keeping an eye on to gauge the direction of the price of gold:

1. COT report. This report shows that commercial traders -- generally believed to be "smart money" traders involved in day-to-day operations of the commodity in question -- are short gold. The commercial traders are increasingly short while others are increasingly long; in such a scenario, when the non-commercials run out of fuel in their trend, they will start liquidating, and the commercials can see this as an opportunity to add to their short positions and push the market further down.

Below is the chart that illustrates.

Click to see enlarged chart

2. Consolidation on daily chart. Below is a daily chart. We see consolidation via a pennant formation -- a formation that often precedes a sharp breakout. Accordingly, I think there could be a sharp breakout if the market can break above resistance at $980 or support near $925.

3. US banking system still under stress. US banks are still failing, and more may be on the way. Bank failures increase the need for safe havens, which gold, with its long history of serving as a stable monetary commodity, can provide.

4. The Federal Reserve is still aggressively monetizing. The Federal Reserve has stated they will continue to print money and buy assets through the end of October. Additional money creation without the creation of additional productivity stands to devalue the currency, and is the kind of event that can precipitate a run on a currency. Currency devaluation, particularly when it stems from monetary policy put forth by governmental/quasi-governmental agencies, is bullish for gold, as gold is regarded as a hedge against currency devaluation resulting from central banking policies.

5. Financial fraud rising. Courtesy of Jesse comes the chart below, which shows that financial fraud is rising in the US. Fraud weakens the US dollar and the political economy it stems from, and thus could be seen as bullish for gold.

Click to view enlarged chart

6. Financial Fraud in Comex. Comex recently permitted gold futures contracts to be settled not only with physical delivery, but with delivery of shares of gold exchange-traded funds like GLD. GATA explains how this inflates the amount of paper gold, much of which may not be backed by real physical gold. This may result in a split in the gold market -- prices for physical delivery and prices for paper gold.

Disclosure: Long physical and paper gold.

Comments

[OFR:]

I am looking to test the 12 month gold settlement price fluctuations against other measures any suggestions, currencishave been done any other suggestions?

Aug 20 05:41 AM

[sdavid0419:]

I can follow most of your logic here except for the financial fraud chart which I believe is very accurate. What I don't get is how moving money from one pocket to another effects the price of gold? Is the assumption that the people stealing the wealth are keeping it in gold?

Aug 20 06:52 AM

[yellowhoard:]

Watch for the spreads on one ounce gold coins to widen as we move forward, as the "official" price of gold becomes less and less realistic.

Aug 20 08:33 AM

[ScroogeMcduck:]

I see a strong breakout on the horizon

Aug 20 08:49 AM

[Bron Suchecki:]

"Comex recently permitted gold futures contracts to be settled not only with physical delivery, but with delivery of shares of gold exchange-traded funds like GLD" - this is incorrect, I would suggest reading kohalakid's comments seekingalpha.com/user/... specifically seekingalpha.com/user/...

yellowhhoard: "Watch for the spreads on one ounce gold coins to widen as we move forward, as the "official" price of gold becomes less and less realistic."

I assume by "official" you mean spot? The price of coins reflects the price of wholesale (ie 400oz bar) gold PLUS manufacturing capacity. There is nothing unrealistic about the official or spot price, wholesalers can always acquire metal at this price. The price of coins merely reflect retail demand. See goldchat.blogspot.com/... and goldchat.blogspot.com/...

Aug 20 10:14 AM

[kohalakid:]

Thanks Bron---

COMEX has NOT allowed silver futures to be settled with ETF shares.
COMEX rules 112.02 for silver and 113.02 for gold still stand. Delivery
MUST be accomplished with physical metal.

I'm still offering $100 to anyone who can show me otherwise.

The COMEX rule change allows ETF shares to be used in EFP of EFS transactions which are hedging transactions between consenting counterparties.

Aug 20 11:18 AM

[FDNY RET:]

Ever so sleight a glimpse of reemerging interest rates.

Aug 20 11:32 AM

[jambo:]

In no comment do I see a strong prediction of "post pennant" breakout direction. This I think epitomizes the nature of the market of late... its all over the damn place and the verbal hedges match the monetary ones.
Alright, here goes.. I'm long today (ouch) but watch me next week! (he said, dice in hand).

Aug 20 12:30 PM

[Bron Suchecki:]

Good point jambo. However, I have made a prediction in my blog article "Gold to break $1000 but then down to $500!" (goldchat.blogspot.com/...). Quote: "I have kept my super secret system a secret for many years, but I have to let you in on it now because a great calamity will befall gold shortly – once it breaks $1000 it will be downhill to $500. The chart below does not lie!"

I would have published this on Seeking Alpha, but I didn't think they (or the readers) would have a sense of humor. Seeing the reactions the article got on my blog and Kitco, it was the right decision.

Aug 20 07:02 PM

[Bron Suchecki:]

In the fight for truth, kohalakid, I know you can't be everywhere so just doing my bit to help.

Aug 20 07:11 PM

[kohalakid:]

LOL!!!!


On Aug 20 07:11 PM Bron Suchecki wrote:

> In the fight for truth, kohalakid, I know you can't be everywhere
> so just doing my bit to help.

Aug 20 10:38 PM