Gold on the Ropes as Markets Hit All Time Highs

Jordan Eliseo

Precious metal prices have been in full retreat the past few weeks, with the price of gold declining toward USD $1300oz. This pullback has had a number of drivers including an easing of the ‘safe haven’ bid as markets fade the rhetoric to do with Korea, the USD catching a bid, and new all time highs in equity markets.

In the last 24 hours, the weakness was compounded by the US Federal Reserve, who, whilst leaving interest rates unchanged (as expected) signalled some confidence about the possibility of one more rate hike in 2017 and even more importantly, laid out its intentions in relation to its colossal $4.5 trillion balance sheet.

The severity of the pullback was not unexpected given the above factors, especially in light of the extended positioning from the more speculative end of the market (see chart), which have often portended a correction.

More on the latest developments in the gold space, as well an update on Bitcoin and the ICO craze, retail investor cash allocations, plus Deutsche Bank on expensive asset markets at this link here

HedgeFund


Jordan Eliseo

ABC Bullion Chief Economist. Gold bull since early 2000s, have spent +20yrs working in investment analytics, research & portfolio construction. Author of two books on investing in gold and causes of the GFC. Lover of markets, competition & technology

Expertise

gold Federal Reserve usd bitcoin aud ICO

Comments

Please sign in to comment on this wire.
Medium photedited3

Patrick Fresne

One long term concern I have about gold relates to Africa: for several decades South Africa produced most of the world's gold supply, and I wonder if a number of other African countries could likewise become major gold producers in future.

Medium cfaeebf8e4ec484a7a677e2b9426af2e1380496323

Jordan Eliseo

hi Patrick - thanks for the comment. There is no doubt the potential for countries in Africa (and other parts of the world for that matter) to increase their gold production. I wouldn't worry too much about the potential impact on prices though, as that additional production will do little to increase total gold supplies, nor the annual rate of increase in total gold supply. Have a quick look at this article i wrote for the Gold Industry Group a year or so ago on this subject, and look forward to any feedback you have. Cheers http://www.goldindustrygroup.com.au/news/2016/7/7/gold-investor-series-stock-to-flow-why-gold-is-not-a-commodity

Medium photedited3

Patrick Fresne

Thanks Jordan, it is an interesting read. As you note in that article, gold has been recognised as a store of value across the world for over three millennia, but it is worth considering that over most of that period the average person was confronted by death and decay on a regular basis. Gold was an important symbol of permanence when people lived a fragile existence, hence the high regard in which the metal was held. But the generations born after WWII have benefited from improving living standards thanks to household electricity and advances in medicine, and as a result, gold has lost some of its symbolic clout. Will steadily rising living standards across the world result in declining interest in gold in the decades ahead?. Very hard to determine, which makes it hard to estimate demand for gold over the long term. That said, the supply side does look pretty challenged over a three or four year time frame.

Join the conversation