Is the gold price a bubble?

Some of you might be worried about the gold price being a bubble, so I would like to place your minds at easy. There are a number of reasons why the gold price is not a bubble:

1. Gold is appealing when there is no returns on other asset classes. In fact gold is appealing if only bonds are low-yielding because only a little bit of that money need to 'slosh around' into gold equities and derivatives.

2. Derivatives are less alluring when financial markets are panicky, so fund managers prefer ETFs, physical gold, mining stocks with long life production capacity, to avoid financial risk exposure.

3. Risk of further currency debasement - the equity markets are going to fall at some point because of low returns will eventually see stocks sold off...US unemployment is around 10%.

4. Risk of slower global growth

5. Gold has very small industrial demand, and very large investment holdings. During times like these 'speculative demand' can greatly add to the price

6. Gold after adjusting for inflation since 1980 ($760/oz) is not very high. Thirty years of inflation means gold is cheap. We looked some time ago at the historic dow jones/gold ratio and concluded that gold can go to $2400/oz without much trouble. The more debasement of the USA, the higher the Dow will go, so rest assured $2400/oz is based on a 10,000 pt Dow. It might be 20,000 in 5 years time. Anyway, you don't need to speculate about that. This ratio has worked well for 113 years.

I personally like emerging gold producers. Africa has particular appeal because of the cheap cost of developing resources and the excellent exposure provided in Australia, Canada and the United States, as well as the London-based AIM (Alternative Investment Market). These markets also provide exposure to gold in Mongolia/China, Russia, Latin America and Indonesia/PNG.

I tend to forget the appeal of silver because there are few stocks in Australia chasing silver. The reason is that they mostly focus on Africa, Asia, whereas most silver mines are in Latin America and the USA.

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Andrew Sheldon www.sheldonthinks.com

Gold set to breach previous high of $1260/oz

Gold has reached a new all-time high of $1260/oz, matching the previous high set 3.5 months earlier. In the coming week, we will see whether it continues on to extend the high, or falls back for some profit taking. I suspect the rally will continue with the current trend.

Our gold stocks continue to do very well.

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Andrew Sheldon www.sheldonthinks.com

Gold rally upside to $1260/oz

The gold price has short term upside to $1260-1265, before it is likely to be sold off by investors.

The next sell-off is likely to see $40/oz come off gold I suspect, with it likely to consolidate around $1220-1225/oz, before it breaks out to new highs of $1350-1500/oz.

I suspect gold might be given renewed momentum with developments in Iran over the enrichment of uranium. Iran recently commissioned its first nuclear powered reactor, which is intended to help the country produce power. The country however makes no secret of the fact that it wants to enrich uranium. It argues that this is intended only to produce isotopes for medical purposes.

There is of course a big difference between 3%U3O8 and 98% weapons grade uranium. They will not be allowed to get that far. I suspect the country will face a change of government before that happens. The other compelling reason for gold reaching new highs is the debt liquidation in the United States, Japan and the EU. These countries can be expected to debase their currencies, and it will be the hard 'commodity' currencies which will attract most of the support. Don't be surprised however if this predicament results in the commodity producing countries hobbling their currency in order to retain a competitive exchange rate. There are several ways they can do this:

1. Retaining low interest rates (reduce the currency)

2. Stimulating the domestic spending (i.e. stronger import growth) by engaging in debt-spending

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Andrew Sheldon www.sheldonthinks.com

Gold price likely to find support

The gold price appears to be consolidating at a support level. This provides a strong entry point. The end of the tax season is also a pertinent consideration, as sales to realise tax losses tend to push markets down in June.

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Andrew Sheldon www.sheldonthinks.com

Gold looking for a new rally

Gold prices appear to have found a new support. Its not the strongest support, but its probably the best one you are going to get, so I'm taking it. Its also an opportune time to buy A1 Minerals at an opportune time since it broke support at 24c the other day. Sellers have also disappeared.

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Andrew Sheldon www.sheldonthinks.com

Gold destined to rally to $1300-1350/oz level

The gold price has reached technical resistance again, which augers well for the achievement of a new high. The lead usually somes from the NY-London trading session, so we might expect this to happen in overnight trading for Australians.

Based on the established trend, we might expect the gold price in this rally to reach the $1300-1350/oz level, though that will ultimately depend on the price action. In the short term, there is the prospect of the price falling back to $1225-1230, however given the small downside, its safe to say that gold will be breaking out tonight. This makes gold and silver, or related stocks good buying at current levels. I don't advise buying physical gold. For upside its either call options, CFDs or spec miners/project developers. With the prospect of Kevin Rudd backing down on the miners tax, it might be good to anticipate that move. This makes companies like A1 Minerals, Integra Mining, CRE.ASX more attractive.

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Andrew Sheldon www.sheldonthinks.com

Gold poised for further gains after consolidation

Gold is poised to break the $1250/oz mark, though it might not come for a few weeks yet. Clearly the growing concerns about the quality of sovereign (government) debt are going to worry fund managers in coming months. In any respect, the strength in the gold price is assured because who would count on central bankers raising interest rates to an extent which would curtail demand or liquidate credit. It will not happen. Instead we are looking at a Japanese-style recession....years of stagnant economic activity. Not as bad mind you. Japan was a more tragic case.

Interestingly, if you are interested in Japan, I hold great hope in the new PM of changing Japan. The most critical issue is whether the new PM will get a majority in both houses in July 2010. The upper house elections will be closely watched. See here for details. Global financial markets could do with some good news...though it will take years for fiscal reforms to make a difference, and for the new PM to prove himself.

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Andrew Sheldon www.sheldonthinks.com

Gold short term direction will be decided tonight

Gold has probably been giving a few people a scare in the last few days. The short term action has been negative, however the reality is that matters could not be more supportive for gold. This Tuesday night will be critically important I think in deciding the outlook for gold. I am expecting a pull back above $1200/oz, regardless of whether the Euro flounders. Actually, I think it will recover because there is no more bad news to come. Useless governments are always good for gold in the long run.

I expect the gold price to resume short term trend, but let the market decide.

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Andrew Sheldon www.sheldonthinks.com

Silver looking for support at $18.82/oz

The fundamentals for the silver price are similar to the gold price. I anticipate support at the 18.82/oz level due to the currency considerations which are destined to give the precious metals support.

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Andrew Sheldon www.sheldonthinks.com

Gold likely to find support at $1220/oz

The gold price has fallen back in the last 2 days after rallying past its previous high established in Dec 2009. At this point I suspect gold will find support at the $1220 level. If we turn to the currency markets, the Euro is destined to rally after absorbing the hits caused by the Greece, Portugal and Spain debt issues. The identification of the debt problem was months-years away.

The debt restructuring is really good news because its going to mean curtailment of those practices which caused the problem. So, as they say, buy on the news. The EUR should recover, as its currently at an important historical support. I think this ought to provide good support for a strong gold price in USD terms.

If I am wrong, then we can see that the gold price can fall back to around $1125/oz. The fact that the gold price has breached the previous high is little comfort, as it is not very convincing at this stage. We need a further advance before the market will take comfort. We ought to thus look for the Euro for direction. At this point I see gold advancing further this week!

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Andrew Sheldon www.sheldonthinks.com

Gold achieves new highs

Unsurprisingly, gold has broken out, reaching a new 'record' high of $1230/oz. More promising is the fact that it closed at its high, a strong indicator that it will go higher. We might reasonably expect a rally to around $1500/oz. We think A1 Minerals (AAM.ASX) - a new gold producer - is the best exposure to this sector because it has just secured funding for a plant expansion.

Their management does not much have my confidence - but you don't buy a car because its pretty, you but it because its cheap and gets you from A to B. And you don't care if you crash it. :)

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Andrew Sheldon www.sheldonthinks.com

Gold breaks into a new high

It was expected that gold would break out in US trading overnight. The gold price rallied to $1175/oz before falling back to $1167. We might well expect it to settle back to $1160 before moving forward again in US trading this evening. The next test is $1224/oz. I dare say it will be EC issues that gets the gold price up to those levels. We might thereafter expect a sell-off, but ultimately I think it will be the Iran conflict which really gives gold (and oil) momentum.

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Andrew Sheldon www.sheldonthinks.com

Gold set to rally to $1200/oz

Gold is once again challenging its previous resistance, as we await news as to whether prices will rally in a new up-turn. Certainly there a number of positives which are likely to assist gold:

1. Iran is still threatening to develop nuclear weapons. There is a consensus which seems likely to result in some form of intervention.

2. The EU debt concerns are building

3. Limited upside to raise interest rates because of debt burden

4. Gold is already technically in an uptrend mode, having already achieved a higher high.

The next move is likely to be to challenge the $1224 level - shown on the chart.

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Andrew Sheldon www.sheldonthinks.com

Gold consolidating before moving to higher levels

Gold is just about to test some short term support, which needs to be breached before gold can rise to higher levels. I am expecting it actually to be sold back in the short term. It has upside to $1150/oz, however I am looking for a pull-back to $1100/oz in the short term before it challenges $1125/oz.

These are not moves long term investors would care about.

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Andrew Sheldon www.sheldonthinks.com

Silver prices - support

Gold and silver usually have good correlation, so looking at the silver market, I decided to take a position using CMC Markets. Here is the chart at this time. Some people might be concerned by that breach of the uptrend, however it did recover, so I think its simply a failed break of trend. I am expecting silver prices to run from here.

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Andrew Sheldon www.sheldonthinks.com

Gold poised for a major rally to $1225/oz and beyond

Gold poised for a major rally. If you examine the following chart it will be apparent that gold has been consolidating in recent months. The chart however suggests that the price of gold is on the brink of a major move. Given that interest rates are at record lows and the central banks have been stimulating the global economy; given the fact that banks have been recapitalised, there is no reason to think that costs have not risen or that debt is going to be liquidated. The implication is that commodity prices are going to stay high, and among them gold is going to be attractive.
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Andrew Sheldon www.sheldonthinks.com

Gold poised for a new rally!

Gold prices are showing signs of life judging from the latest chart. Resistance is around $1116/oz. In Tuesday trading this resistance appears to be holding. I would not be surprised to see gold fall back to the $1057/oz support level before it advances higher. This will provide a 'double bottom' of sorts, or more correctly further confirmation of this uptrend. On a more positive note, gold prices might simply break in the next few days, once a short term uptrend has been tested. I did not mark this on the chart.

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Andrew Sheldon www.sheldonthinks.com