Best of the Week
Most Popular
1.Bitcoin War Begins – Bitcoin Cash Rises 50% While Bitcoin Drops $1,000 In 24 Hours - Jeff_Berwick
2.Fragile Stock Market Bull in a China Shop -James_Quinn
3.Sheffield Leafy Suburbs Tree Felling's Triggering House Prices CRASH! - Nadeem_Walayat
4.Bank of England Hikes UK Interest Rates 100%, Reversing BREXIT PANIC Cut! - Nadeem_Walayat
5.Government Finances and Gold - Cautionary Tale told in Four Charts - Michael_J_Kosares
6.Gold Stocks Winter Rally - Zeal_LLC
7.The Stock Market- From Here to Infinity? - Plunger
8.Ethereum (ETH/USD) – bullish breakout of large symmetrical triangle looks to be getting closer - MarketsToday
9.Electronic Gold: The Deep State’s Corrupt Threat to Human Prosperity and Freedom - Stewart_Dougherty
10.Finally, The Fall Of The House Of Saud - Jim_Willie_CB
Last 7 days
Gold Sector is On a Long-term Buy Signal - 21st Nov 17
Saudi Arabia and Israeli Alliance Targets Iran - 21st Nov 17
What History Says for Gold Stocks in 2018-2019 - 21st Nov 17
US Bond Market Operation Twist by Another Name and Method? - 21st Nov 17
Learning from Money Supply of the 1980s: The Power and Irony of “MDuh” - 20th Nov 17
Trump’s Asia Strategy, Goals and Realities - 20th Nov 17
Crude Oil – General Market Link - 20th Nov 17
Bitcoin Price Blasts Through $8,000… In Zimbabwe Tops $13,500 As Mugabe Regime Crumbles - 20th Nov 17
Stock Market More Correction Ahead? - 19th Nov 17
Universal Credits Christmas Scrooge Nightmare for Weekly Pay Recipients - 18th Nov 17
Perspective on the Gold/Oil Ratio, Macro Fundamentals and a Gold Sector Bottom - 18th Nov 17
Facebook Traders: Tech Giant + Technical Analysis = Thumbs Up - 18th Nov 17
Games Betting System For NCAA Basketball Sports Betting - Know Your Betting Limits - 18th Nov 17
Universal Credit Doomsday for Tax Credits Cash ISA Savers, Here's What to Do - 18th Nov 17
Gold Mining Stocks Fundamentals Q3 2017 - 17th Nov 17
The Social Security Inflation Lag Calendar - Partial Indexing - 17th Nov 17
Mystery of Inflation and Gold - 17th Nov 17
Stock Market Ready To Pull The Rug Out From Under You! - 17th Nov 17
Crude Oil – Gold Link in November 2017 - 17th Nov 17
Play Free Online Games and Save Money Free Virtual Online Games - 17th Nov 17
Stock Market Crash Omens & Predictions: Another Day Another Lie - 16th Nov 17
Deepening Crisis In Hyper-inflationary Venezuela and Zimbabwe - 16th Nov 17
Announcing Free Trader's Workshop: Battle-Tested Tools to Boost Your Trading Confidence - 16th Nov 17
Instructions to Stop a Dispossession Home Sale and How to Purchase Astutely at Abandonment Home - 16th Nov 17
Trump’s Asia Tour: From Old Conflicts to New Prospects - 16th Nov 17
Bonds And Stocks Will Crash Together In The Next Crisis (Meanwhile, Bond Yields Are Going Up) - 16th Nov 17
A Generational Reset That Will Redistribute Wealth to the Bottom 60% Is Near - 16th Nov 17
Ethereum (ETH/USD) – bullish breakout of large symmetrical triangle looks to be getting closer - 16th Nov 17
Gold’s Long-term Analogies - 16th Nov 17
Does Stripping Streets of ALL of their Trees Impact House Prices (Sheffield Example)? - 15th Nov 17
The Trump Administration’s IP Battle Against China - 15th Nov 17
5 Ways Bitcoin can Improve its Odds of Becoming the Future of Money - 15th Nov 17
These Headlines Say Gold is Building a Base for Something Big - 15th Nov 17

Market Oracle FREE Newsletter

Traders Workshop

Gold And The Need To Explain Price Action

Commodities / Gold and Silver 2017 Sep 16, 2017 - 05:09 PM GMT

By: Kelsey_Williams

Commodities

People are obsessed with the price of gold. And the demand for answers to the question “Why?” continues to grow. Why did gold go up/down $20.00 today? Why?

All too eager to provide the answer, journalists respond as follows: 

Quote: “A weak U.S. inflation print may be just what gold prices need to finally stay above $1,300.” …WSJ Aug 2016

Seriously? I thought higher gold prices were the result of inflation.


Quote: “Negative interest rates are sweeping the world as countries try to devalue their currencies, and that’s helping the price of gold.” …Feb 2016

The ongoing devaluation of the U.S. dollar has been taking place for over one hundred years. Gold’s continually increasing price – over time – reflects that devaluation. There is no correlation between gold and interest rates.

Quote: “Gold prices were on track for a second straight day of losses Tuesday after United Nations sanctions against North Korea were less severe than many initially expected.” …WSJ Sep 12, 2017

Apparently more severe sanctions would have led (or did lead) to higher gold prices. Why? And why do sanctions that “were less severe” lead to lower gold prices?  The answer in both cases is: they don’t.

Quote: Analysts and investors have also said that demand for haven assets has weakened early in the week because damage from Hurricane Irma was less severe than expected. Many investors favor gold during times of geopolitical uncertainty. …WSJ Sep 12, 2017

Another case of unrealistic expectations being dashed on the rocks of reality. Unfortunately, the explanation after the fact is just as bad as the original expectation.  Contrary to the statement above, gold is not influenced or affected by “geopolitical uncertainty”; regardless of what investors think.

Quote: Gold prices climbed Thursday after the European Central Bank left its accommodative monetary policies in place. …WSJ Sep 12, 2017

Any other central bank’s actions are still secondary to the U.S. Federal Reserve Bank and its actions concerning the U.S. dollar. Actions by other central banks are more properly viewed in the context of their own respective economies and/or relative to the U.S dollar. Gold’s price is the direct inverse reflection of the value of the U.S. dollar.

The underlying problem is fundamental.  Most people either are unaware or refuse to accept the one basic principle that defines and explains gold: Gold Is Real Money.

It is necessary, of course, to understand the principle more fully before attempting to answer questions about the price of gold. Further enlightenment on the subject can found here and here.

The lack of knowledge regarding gold leads to answers and explanations for price action that are illogical and incorrect. In the above examples, another factor is that the explanations are headline driven.

It is presumed that any price action of consequence must have a clear explanation. When an explanation isn’t readily apparent, check the headlines; and make something up.

Why did gold go up? New hurricane offshore. Why did gold go down? Effects of storm after making landfall weren’t as bad as expected. Gold is up again.  Well, there is another hurricane offshore and it could be worse than the last one. Nah, find another reason.  How about this? The ECB held firm on interest rates/raised rates/didn’t raise rates/changed their mind, etc.  If that doesn’t work, reverse the facts to suit the circumstances. Inflation refuses to attend the party.  Maybe gold will defy all reasonable logic and ignore core fundamentals.  Maybe gold’s price will go up while the U.S dollar strengthens.

Let’s be clear.  There are short-term, temporary changes in gold’s price that are not the result of its basic identity as real money.  And changes in the gold price occur only when someone acts on their expectations, faulty logic or not.

But those price changes are elusive and will revert to their place within the fundamental trend; namely that gold’s continually higher price over time reflects inversely the continually lower value of the U.S. dollar.

On a secondary basis, gold’s price decline since August 2011 reflects a strengthening U.S dollar.  It is very possible that trend has not reversed yet, although eventually it will.

And the more recent gold price increase since the beginning of this year is tied directly to the decline in value of the U.S. dollar. Any other explanations are simply not applicable.

Beyond that it is mostly a guessing game; at least in the very short-term. And for good reason. A plethora of faulty logic, (non)correlations, and contradictions seem to indicate more than just an ignorance of gold’s fundamental(s).

It just may be that the day-to-day changes in gold’s price are not easily attributable to known facts.

The gold market is relatively thinly traded. Even so, there are many different reasons why someone bought or sold the yellow metal on a certain day. Any specific transaction could have been initiated after weeks or months of deliberation.  And if it is spontaneously correlated time-wise with other known events, we still don’t know the reasons or logic that went into that decision.

Also, it is possible (likely?) that the traders who provide explanations to the journalists, are just as much in the dark themselves for an answer.

The only visible, consistently reliable, fundamental indicator of gold prices is the U.S. dollar. The ongoing decline in value of the U.S. dollar is reflected in an ever higher gold price over time.

Periods during which the U.S. dollar shows signs of strength and stability are reflected in lower or more stable gold prices.

Those periods are temporary. And they can last for years. The previous temporary period of U.S. dollar strength lasted for twenty years from 1980 – 2000. Don’t be swayed by the clarion call of impending riches or the fear of missing out on wealth untold.

If you really want to understand gold, focus on the U.S. dollar.  And ignore the headlines.

By Kelsey Williams

http://www.kelseywilliamsgold.com

Kelsey Williams is a retired financial professional living in Southern Utah.  His website, Kelsey’s Gold Facts, contains self-authored articles written for the purpose of educating others about Gold within an historical context.

© 2017 Copyright Kelsey Williams - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2017 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