Best of the Week
Most Popular
1.The Trump Reset, US Empire's Coming Economic, Cyber and Military War With China (2/2) - Nadeem_Walayat
2.Now Is the Time to Buy Gold - 5th Jan 17 - John Grandits
3.CIA Planning Rogue President Donald Trump Assassination? Elites "Manchurian Candidate" Plan B - Nadeem_Walayat
4.The Trump Reset - Regime Change, Russia the Over Hyped Fake News SuperPower (Part1) - Nadeem_Walayat
5.Most Popular Financial Markets Analysis of 2016 - Stock Market Crash Postponed Again - Nadeem_Walayat
6.No UK House Prices Brexit Crash 2016 Despite London Weakness, Forecast 2017 - Nadeem_Walayat
7.President Trump Understands the NSA, CIA... LIE, America's Intelligence Agencies Crime Syndicate! -Nadeem_Walayat
8.President Donald Trump's 2017 New Year Message, BBC Fake News, Was 2016 a Dream? - Nadeem_Walayat
9.Major Stocks Bear Market Still Looms - Zeal_LLC
10.Biased 2017 Forecasts - Debt, Housing and Stock Market (1/2) - James_Quinn
Last 7 days
The Trump RESET Starts on US Presidential Inauguration Day 2017 - What to Expect - 20th Jan 17
Will the CIA Assassinate Rogue President Donald Trump Like JFK? - 19th Jan 17
Bonds, Dollar, Stocks, Gold, Silver Major Markets at Turning Points - 19th Jan 17
Populism; the Danger? What About Debt? - 19th Jan 17
Gold Price 50-DMA Breakout - 19th Jan 17
Turkey, 'Axis of Gold' and End of US Dollar Hegemony - 19th Jan 17
The Most Important Market Chart on the Planet - 19th Jan 17
Trump Deficits Will Be Huge - 19th Jan 17
Stock Market Trading Patience Pays Off with CHK Using Momentum Reversals - 19th Jan 17
Gold - How to "Buy Low and Sell High" Like a Pro - 19th Jan 17
State of the Global Stock, Financial and Commodity Markets Report 2017 - 19th Jan 17
The Hunt for Russia's Next Enemy - 18th Jan 17
Returning Gold Bulls - 18th Jan 17
Biotech Breakthrough Could Create A $11.4 Trillion Opportunity - 18th Jan 17
Bitcoin and Gold - Outlook, Volatility and Safe Haven Diversification - 17th Jan 17
Stock Market Uptrend on Borrowed Time - 17th Jan 17
The One Stock to Retire On - 17th Jan 17
Trump anti-Communist Counter Revolution - 17th Jan 17
US Stock Market Update as the Trump Inauguration Approaches - 17th Jan 17
The American Crisis - Common Sense 2017 - 17th Jan 17
Obama Leaves, Hope Arrives, Will Stupid Stay? - 17th Jan 17
Damage Inflicted by Precious Metals Manipulation Is in the “Multi Billions” - Keith Neumeyer - 17th Jan 17
Gold Price Forecast 2017 Update - Video - 17th Jan 17
The Story of the U.S. Regime Change Plan in the Philippines - 16th Jan 17
Gold Price 2017 Trending Towards $1375 as Forecast - 16th Jan 17
'Deep State' CIA Director States We are Not NAZI's, Warns Trump Does Not Understand Russian Threat - 15th Jan 17
UK House Prices Forecast 2017 - Crash or Bull Market? - Video - 15th Jan 17
SPX Stocks Bull Market Update - 14th Jan 17
President Trump vs the Deep State that Hides in Plain Sight - 14th Jan 17
The Impact of Sir Alex Ferguson's Retirement on Man United's Share Price - 14th Jan 17
What Can Stock Market Tell You About Politics? - 13th Jan 17
Big Gold Buying Coming 2017 - 13th Jan 17
A Bullish Case for Gold 2017 - 13th Jan 17
Will Stocks Bull Market Continue to Charge or is it Time to Sell the News - 13th Jan 17
Gold and Silver Off To Shining Start to 2017 - 13th Jan 17
Gold’s Fundamental Outlook for 2017 - 13th Jan 17
Is trading stocks and shares just as luck-based as roulette? - 13th Jan 17
Trump CIA Like Nazi Germany - Fake MI6 Intelligence leaked to Fake News Mainstream Media - 13th Jan 17
USD in Decline. SPX and TNX May Follow - 12th Jan 17
CIA War On Trump - Leaks Fake MI6 Intelligence to Fake News Broadcast Media - 12th Jan 17

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

State of Global Markets 2017 - Report

Why Isn't the Gold Price Going Through $2,000 Now?

Commodities / Gold and Silver 2011 Oct 06, 2011 - 12:18 PM GMT

By: Julian_DW_Phillips

Commodities Best Financial Markets Analysis ArticleThe gold price went over $1,900 and looked as though it was going to mount $2,000, but since then has fallen back to $1,600 and is in the process of consolidating around the lower $1,600 area. It was expected that it would have moved a lot higher faster, but that hasn't happened, yet.


In the face of Italy's downgrade to A2 by the ratings Agency, Moody's summary that, "There has been a profound loss of confidence in certain European sovereign debt markets, and Moody's considers that this extremely weak market sentiment will likely persist. It is no longer a temporary problem that might be addressed through liquidity support, and several euro-area governments are increasingly affected by the loss of confidence." The downgrading was expected, as are further downgrades for the different Eurozone members, shouldn't the gold price be on its way through $2,000 to much higher levels?

The 'downturn'

The news over the last few weeks has sent global financial markets down very heavily as a slow recovery morphed into a downturn and at best a flat economic future in the developed world. These falls have been accompanied by tremendous worries that there could be a major banking crisis that will cripple the Eurozone economy as a whole, not just the debt-distressed nations. In France growth is now at zero, in Greece it is somewhere south of a 5% dip in growth well into recession. Greater austerity simply adds to the fall in government revenues defeating their purpose of reducing their deficit. All of this implies an ongoing shrinkage of the Eurozone economy. This hurts investor capacities in all financial markets and wealth throughout the Eurozone. Cash becomes 'king' as investors flees markets to a holding position waiting for much cheaper prices before re-entering markets at lower levels.

The path to deflation is then made. Deflation in its early stages causes tremendous de-leveraging. That is the selling of positions to pay off loans taken to increase positions. It may come about because of investor prudence, banks calling in loans, stop-loss triggers and margin calls [where the level of debt against positions becomes too high and forces sales]. This often and particularly in the case of precious metals has nothing to do with the fundamentals of the market. It is simply the position of investors. This happened in the precious metal markets as well. This is why gold and silver prices fell.

De-leveraging

As was the case in 2008 and often through history, the process of de-leveraging is a short-lived one, even when it is savage. Once and investor has sold the positions he feels he needs to that downward pressure on prices disappears. Leveraged positions are the most vulnerable of investor held positions and can make up the froth or 'surf' in the markets, which cause the volatility levels to increase when dramas strike. In 2008 these positions were huge because there had been two and a half decades of burgeoning markets that encouraged greater risk taking. Since then, while leveraging has taken place it has been less and rapidly removed when dramas hit.

In 2008 we saw a similar drop in prices from $1,200 to $1,000 [20%], which equates to the fall from $1,910 to $1,590 [16.9%]. In 2008 the precious metal prices then slowly rose as buyers started to come in from all over the world. It took over a year for prices to recover back to $1,200.

Change in market structure

Today the shape of the precious metal markets is quite different, particularly that of gold. In 2008 central banks were sellers, today they are buyers. In 2008 the Chinese gold markets were small. Since then they have grown to such an extent that they are soon to overtake India. These are two dynamic features that give demand a totally different shape to 2008. More than that, the impact of the developed world long-term has diminished quite considerably. It now represents less than 21% of jewelry, bar and coin demand. The emerging world as a whole represents over 70% of such demand now.

The bulk of the world's physical gold that comes to the market is dealt at the London twice daily Fixings. The balance that is traded outside the Fixings is the most short-term price influential amounts, producing the swings that resemble the waves on the seashore. It is these traders and speculators that often persuade long-term buyers to stand back and wait for the prices to swing to the point that persuades them to enter the market. The drop from $1,900 had this effect on investors. Now that the fall has happened we see a surge in demand from the emerging world to pick up the slack in the market. We have no doubt that central banks are buying the dips as well.

So once the selling from the developed world has stopped [emerging market demand waits for this before buying, allowing the fall to extend further] in come the buyers happy that they are entering the market at a good time. Because of this change in market shape we fully expect the market to take far less time to find its balance and allow demand to dominate.

2012 recession and the battle against it

The I.M.F. has just warned that the developed world will enter a recession in 2012. Will that be a negative for the gold market? We do not believe that it will. The world has seen the recovery peter out, has seen the sovereign debt crisis arrive and now sees the I.M.F. recommend that the Eurozone banks be recapitalized. What does this mean for precious metals?

Cast you minds back to the recapitalization of U.S. banks under the TARP measures whereby the Fed bought the 'toxic' debt investments of the banks against fresh money. When we say fresh we mean just that, newly created money in the trillions. This did lower the perceived value of the dollar inside and outside the U.S. The effect on gold was palpable as it rose back through $1,200 and onto new highs.

Already we are hearing rumors of an E.U. government minister's plan to walk the same or similar road. With the recent past in mind, we are certain that that will lower the perceived value of the euro and see euro investors seek places to cling onto the value the euro still has. This time round we fully expect markets to discount these actions in the same way. The downturn will therefore be fought with new money creation in the same way the U.S. did it from 2008 on.

Second time round

There is a significant difference between 2008 and now. In 2008 the credit crunch was new to investors and shocked the markets into overreactions. In 2011 we are not shock but expectant of what lies ahead. In 2008 the developed world economy had considerably more resilience than it does now, so the situation is more serious and less likely to be believed as the panacea for the developed world's economic crisis. Because the gold and silver prices rose so strongly after that time and in the face of those 'solutions' the same will be expected now. In 2008 confidence in the financial system as well as in the monetary system appeared unassailable, not this time. While the developed world, outside of the gold ETF's in the U.S., has not been the main driver of rising gold prices, this time we would not be surprised to see their resilient confidence in their world snap and a frantic search for safe-havens follow.

Yes, if we see a repeat of the 2008 breakdowns in the near future they will slaughter remaining confidence in the monetary system and the ability of its governments to set matters straight. What then for gold and silver?

Gold Forecaster regularly covers all fundamental and Technical aspects of the gold price in the weekly newsletter. To subscribe, please visit www.GoldForecaster.com

By Julian D. W. Phillips
Gold-Authentic Money

Copyright 2011 Authentic Money. All Rights Reserved.
Julian Phillips - was receiving his qualifications to join the London Stock Exchange. He was already deeply immersed in the currency turmoil engulfing world in 1970 and the Institutional Gold Markets, and writing for magazines such as "Accountancy" and the "International Currency Review" He still writes for the ICR.

What is Gold-Authentic Money all about ? Our business is GOLD! Whether it be trends, charts, reports or other factors that have bearing on the price of gold, our aim is to enable you to understand and profit from the Gold Market.

Disclaimer - This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold-Authentic Money / Julian D. W. Phillips, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold-Authentic Money / Julian D. W. Phillips make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold-Authentic Money / Julian D. W. Phillips only and are subject to change without notice.

Julian DW Phillips Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife