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Gold’s Artificial Lows
ZEAL Speculation and Investment
Adam Hamilton
8/7/2015
Excerpt:
With gold languishing near deep secular lows, its technicals look hopelessly broken. Sentiment is off-the-charts bearish, with traders universally convinced gold is doomed to spiral lower indefinitely. But gold’s weakness this year is very deceiving, as it wasn’t the product of global fundamental supply-and-demand forces. Extreme record shorting by American futures speculators spawned these artificial lows.
Gold’s price is its price, so how the metal got way down here may seem irrelevant. But nothing could be farther from the truth! Fundamentally-driven lows are righteous. If the world gold supply expands faster than demand, or demand contracts faster than supply, then the resulting lows are real. They will persist for as long as fundamentals remain unfavorable, as gold’s sellers have no obligations whatsoever to return.
And gold has certainly faced real fundamental headwinds this year. The elite researchers at GFMS, the group that supplies the World Gold Council with its comprehensive supply-and-demand data, recently reported global gold demand dropped 14% in Q2. Provocatively most of this was from plunging demand in China, as local investors were seduced into chasing that crazy stock bubble that subsequently burst.
But the massive year-over-year plunge of nearly a quarter in Chinese investment and jewelry demand for gold failed to impact its price. During that same Q2, gold merely slipped a trivial 0.9%. That means there were enough buyers elsewhere to offset China’s popular-speculative-mania-induced drop in demand. And ending Q2 at $1172, gold was just 2% under its initial deep June-2013 low from 2 years earlier.
Gold’s recent plunge that ignited a full-blown panic in the absurdly-undervalued gold stocks actually had nothing to do with global fundamentals. It was driven by American futures speculators’ extreme record shorting. Such lows are artificial, which is defined as “not arising from natural or necessary causes, contrived or arbitrary”. Even more importantly, they are never sustainable due to the nature of short selling.
Gold’s latest woes began several weeks ago on Friday July 17th. That day the Chinese central bank finally announced it had much bigger gold reserves than long reported. The People’s Bank of China declared its gold reserves were 1658 metric tons, a massive 57% jump from the previous figure which had been reported continuously since April 2009. China finally admitted it was accumulating reserve gold.
This was very bullish news, and probably just the tip of the iceberg. The Chinese government is very shrewd, and knows that if it reports the full extent of its gold buying speculators will pile in forcing it to pay higher prices in the future. So that disclosure was almost certainly only partial. Yet analysts had long been predicting the PBoC’s gold holdings were at least 3500t, so the 1658t reported was a disappointment.
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View the complete article, including images, at:
http://www.zealllc.com/2015/gartlow.htm
ZEAL Speculation and Investment
Adam Hamilton
8/7/2015
Excerpt:
With gold languishing near deep secular lows, its technicals look hopelessly broken. Sentiment is off-the-charts bearish, with traders universally convinced gold is doomed to spiral lower indefinitely. But gold’s weakness this year is very deceiving, as it wasn’t the product of global fundamental supply-and-demand forces. Extreme record shorting by American futures speculators spawned these artificial lows.
Gold’s price is its price, so how the metal got way down here may seem irrelevant. But nothing could be farther from the truth! Fundamentally-driven lows are righteous. If the world gold supply expands faster than demand, or demand contracts faster than supply, then the resulting lows are real. They will persist for as long as fundamentals remain unfavorable, as gold’s sellers have no obligations whatsoever to return.
And gold has certainly faced real fundamental headwinds this year. The elite researchers at GFMS, the group that supplies the World Gold Council with its comprehensive supply-and-demand data, recently reported global gold demand dropped 14% in Q2. Provocatively most of this was from plunging demand in China, as local investors were seduced into chasing that crazy stock bubble that subsequently burst.
But the massive year-over-year plunge of nearly a quarter in Chinese investment and jewelry demand for gold failed to impact its price. During that same Q2, gold merely slipped a trivial 0.9%. That means there were enough buyers elsewhere to offset China’s popular-speculative-mania-induced drop in demand. And ending Q2 at $1172, gold was just 2% under its initial deep June-2013 low from 2 years earlier.
Gold’s recent plunge that ignited a full-blown panic in the absurdly-undervalued gold stocks actually had nothing to do with global fundamentals. It was driven by American futures speculators’ extreme record shorting. Such lows are artificial, which is defined as “not arising from natural or necessary causes, contrived or arbitrary”. Even more importantly, they are never sustainable due to the nature of short selling.
Gold’s latest woes began several weeks ago on Friday July 17th. That day the Chinese central bank finally announced it had much bigger gold reserves than long reported. The People’s Bank of China declared its gold reserves were 1658 metric tons, a massive 57% jump from the previous figure which had been reported continuously since April 2009. China finally admitted it was accumulating reserve gold.
This was very bullish news, and probably just the tip of the iceberg. The Chinese government is very shrewd, and knows that if it reports the full extent of its gold buying speculators will pile in forcing it to pay higher prices in the future. So that disclosure was almost certainly only partial. Yet analysts had long been predicting the PBoC’s gold holdings were at least 3500t, so the 1658t reported was a disappointment.
.................................................. ..
View the complete article, including images, at:
http://www.zealllc.com/2015/gartlow.htm