Saturday, July 30, 2011

Gold putting in a short term top?

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I've talked about Gold as a financial instability and uncertainty hedge in the past on this blog and that's exactly the part Gold has been playing over the last few weeks as the debt ceiling talks come to a head with an agreement needing to be reached ASAP before the US defaults on their obligations. This instability has pushed the price of Gold up against the resistance level on a channel that Gold has been trading in for the past two and a half years.

The miners are also not confirming this move higher in the price of Gold with the HUI Index having lost around 7% over last week whereas other US stocks only lost around half of that. The miners failed to confirm Golds new high in late April as well which preceded around a $100 drop in the price of Gold. The miners often do lead the price of the metal itself, rising out of bottoms before Gold does and easing off the gains and falling before Gold does.

It's my opinion that when a deal is made for the debt ceiling in the coming week we will likely see the start of a multi week correction in the price of the metals. Although the debt ceiling agreement does not solve any issues, it does remove the uncertainty which has seen Gold launch to and trade at new highs (in USD).

Of course this opinion of mine for the short term does not change my position that over the medium-longer term Gold will continue to outperform.


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7 comments:

  1. agreed, its interesting to compare gold with other currencies as a 'baseline' to see if gold is going up or (say) the USD is going down. I normally cross reference to a number of currencies to see

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  2. Adding to the gold price correction argument; we are approaching a seasonal correction early to mid August.

    http://i879.photobucket.com/albums/ab358/OUZO_01/Gold40years.png

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  3. obakesan, you might already be familiar with this, but Kitco actually produce a chart that takes into account movement in the USD so as to show the true Gold price:
    http://www.kitco.com/kitco-gold-index.html#RT

    Good point on the seasonal factors Alex.

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  4. Ah... gold makes fools of those who disrespect it Mr Baron.

    Gold a hedge!? You've been reading to much macrobusiness.com. As I've tried to tell them (before I got banned from commenting) gold is money, you are not 'hedging' anything by holding gold, you have in fact demanded payment. You have no counterparty risk so no need to 'hedge'.

    But on the serious side, do you have any thoughts on the lacklustre price performance of the mining shares, considering the gold price? Last time I checked they were actually under-performing the ASX.

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  5. Hi JMD, I may have been a little early with the call, but Gold is only around 2% higher than when I wrote this. You can see Gold broke briefly out of the channel on other occasions and quickly fell back down. Gold could still be putting in a top as I've suggested. Of course I could also be wrong.

    My thoughts on the poor gold stock performance is as per the post, I think they are a leading indicator telling us that this breakout will reverse, that is assuming you are talking about a short term time frame?

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  6. Not really, the mining shares have been lacklustre for quite some time now, yet the gold price has more or less kept on rising.

    My observation is that the mining shares are doing no better, in some cases worse than the ASX in general. It's as if there is no interest at all in mining shares, particularly the juniors. Ok, some of the bigger operators are doing well but they probably always do well.

    Another point I'd make is that this lack of interest does not sit well with the idea of a 'mining boom', there are companies that have cancelled share offers due to lack of interest.

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  7. I'm not really sure what the 'Not really' was directed at... short term I would suggest the miners poor performance is a reflection that the market thinks that this strong rally in Gold is not sustainable. Over a longer period (past two years) I would suggest that the lagging miners is reflective of the low level of speculative money chasing the Gold sector.

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