$GLD, $SLV, $USD
There are Key elements set up to extend Gold’s from just after the Y 2008 global recession to the precious Yellow metals Y 2011 all time high, signalling a comeback this year.
Gold Bugs are looking for a break out of its 5 year range, and technically it looks as though that the element for a sustained rally are firmly in place..
The Y’s 2008-11 rally that saw spot Gold almost 3X in value to reach a record of $1,920.30 oz was built on 3 Key fundamentals, they were:
- Strong physical demand from Top buyers China and India,
- Strong central bank purchases,
- Strong appetite for a safe-haven investment on the fallout from the global recession.
All of these factors worked together as Gold posted solid gains before being over bought by the crowd, with hot money chasing a trend driven by the usual pundit forecasts of a never-ending rally, that ultimately had to consolidate the excesses,
While central bank buying remained solid, the 2 other Key elements of Gold’s rally: the largely Western-driven investment buying and Indian and Chinese buying moderated after the September 2011 record highs.
The recovery in the global economy limited the fear-appeal of Gold, while the high prices stymied physical demand in India and China.
This meant that Gold has ranged between $1,050 and $1,380 since the start of Y 2014.
Notably, the recent 11% rally from a low of $1,159.96 oz on 16 August to the close of $1,291.65 on 14 January, Gold remains within that range.
A weaker USD is generally a boost to Gold, especially if the reason for the lower Buck is the winding back of expectations for more interest rate increases and the ramping up of concerns about an economic slowdown.
President Trump wants a weaker USD, and the Fed dovishness is signaling that he will get it along with a halt in rate hikes and perhaps even a return to stimulus,
The Fed is signaling it may be more patient with its monetary tightening.
Concern over the global economy is also increasing on signs of softer growth in China amid the ongoing trade dispute with The Trump Administration, and weaker manufacturing numbers in Europe and the United States.
As these fundamentals extend, Western buying of Gold as a hedge has a reason to increase.
Certainly there is evidence this is already occurring, with holdings in the SPDR Gold Trust, (GLD) the world’s largest Gold-backed exchange-traded fund, reaching a 6-month high last week.
Short-term drivers such as the US government shutdown and volatile equity markets are aligning with the longer-term drivers of slower world growth and mounting geopolitical tensions on the back of The Trump Administration’s shredding of long-standing US foreign policies.
We are seeing signs that physical demand in China, the world’s biggest buyer, picking up, with net imports via the main conduit of Hong Kong rising 28% in November from the prior month to the highest since July.
Net imports jumped to 37.871 tonnes in November from 29.633 tonnes in October, according to data released on 27 December 2018 by the Hong Kong Census and Statistics Department.
This is not a full picture of China’s Gold demand, but the Hong Kong data is and has been a reliable pointer to broader Gold buying trends.
Also, Gold demand in India may be about to pick up as the 2nd-biggest consumer enters the demand-heavy wedding season and exits Khar Mass, an period in the Hindu calendar from 14 December to 14 January, during which people generally avoid holding weddings and buying Gold or property.
Demand figures for Q-4 have not been released by the World Gold Council yet, but Q-3 numbers showed Chinese demand up 10% from the same frame in Y 2017, India’s was also 10% higher.
Central bank buying has also been rising, according to the WGC, which reported net inflows of 148.4 tonnes in Q-3 of last year, +22% from the same frame in Y 2017.
The data shows that central bank buying for the 1st 3 Quarters of Y 2018 is only 23.2 tonnes short of the 374.8 tonnes recorded for the whole of Y 2017.
So long as these Key elements for Gold demand stay aligned, and supply remains steady, it is likely that Gold will continue to rise.
There is risk, so pay attention.
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