Wednesday, August 31, 2016

Questions America Wants Answered: "Why Is Gold Not At $2,000/oz Yet?"

One scenario the analysts don't address is the possibility the decline that began in 2011 has not yet bottomed and we go lower than the $1047 December 2015 prints. That said, there is a lot of congestion around $1250 where shiny traded from February through June this year.
December futures $1311.50 down five bucks.

From Barron's Asia Stocks to Watch:
Gold came out of its slump this year, advancing by 24%, a figure last seen in 2011, as investors worry about all the paper money major central banks are throwing around the globe.

However, gold is by no means back to its old glories. At $1,316 an ounce, it is about 30% below its all-time high of $1,895/oz, reached on September 6, 2011.

This blogger’s piece earlier this week “Why Gold Could Be Worth $1,700/oz: Deutsche” has gained a fair amount of traction with readers. Deutsche’s argument makes sense: September rate hike or not, the balance sheets of the main four central banks  – US, China, Japan, and EU – have expanded by 300% since the beginning of 2005. If gold prices were just appreciating to keep up with these central banks’ quantitative easing programs, the yellow metal would be worth $1,700 an ounce.

So why is gold price so low and will we see gold reach $2,000/oz? The September 2011-high is worth over $2,000/oz in today’s money, so in that perspective, this year’s rally is just getting started.
Macquarie Research gave three reasons why gold prices are not at $2,000/oz yet.

First and most obviously, a bull rally takes time. We started from a very low base, at just below $1,050/oz as recently as last December.

Second, gold is priced in the U.S. dollar, and the dollar has become stronger. Since September 2011, while gold has fallen about 30%, the British pound also lost 19%, the euro 21%, the yen 25%. “What this means is that the gold price measured in those currencies are far nearer to that 2011 peak than measured in US dollar”, wrote analyst Matthew Turner.

Third and most importantly, the physical demand for gold is lower. Macquarie wrote:
In 1Q weak physical demand, led by a slump in jewellery, probably held the gold price back during that period. In 2Q physical demand was again weak, with jewellery again to blame.

Where the problem was – India – and what caused it: government interference, weak rural income growth, and high prices....