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

Gold price breaks $1200/oz

The gold price is going from strength to strength. The price briefly breached $1200/oz, before closing at $1197/oz. Importantly the price closed only slightly off its high. The strong close is a good indication that the market is expecting further gains even though $1200/oz can be considered psychological resistance. It is also noteworthy that gold has already been sold off to $1150 last week, so we have yet to see the end of this rally.
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Andrew Sheldon www.sheldonthinks.com

The short term outlook for gold looks much better when you consider that crisis talks with Iran are failing to reach a resolution. Iran has even raised the stakes - it is currently conducting 'war games' in preparation for an attack by the USA/Britain and/or Israel. See this BBC News article.
Iran's hostilities to Israel are well-known. Its leader has long campaigned for the destruction of the Israel state. So what can one make of these preparations - is there going to be a war, or is this or political rhetoric?
There is no possibility of a win by Iran, however it could launch medium range missiles against Israel. The question is whether it would get a chance, and would it take that move. Is a settlement likely? The reality is that a number of Arab states have pushed the West to a critical point. During the early phase these Arab states are emboldened by the appeaser stance of the US and international community.
Does Iran have a right to weapons of mass destruction? After all the US and other countries have that capacity. The difference of course is the politics of the country. The US uses weapons for defense purposes; Iran cannot be trusted to do the same. The reason that Iran cannot be trusted is because it does not respect the freedoms of its own people, so don't expect much compliance with any code of objective law.
Having said that, I think Iran has an idea how far it can push the USA and Israel. I would therefore expect the Iranian government to back down at some point. It is likely that:
1. Iran will back down at the last possible point - as a war is not likely to be popular
2. Iran has a vested interest in preserving hostilities because it keeps oil prices higher. There is a security premium built into oil prices, so Arab states love Iran's actions. They probably joke about it an monthly OPEC meetings.
3. The prospect of war appears to Iranian nationalists, who must be the only group liking the Iranian leader, because of his failed economic policy. In an autocratic state, you can understand a corrupt state wanting money for its centralized coffers rather than any desire to create jobs, so don't expect the Iranian government to care about sanctions. They do however elevate disenchantment with the government because international sanctions are readily identified with the government's economic policy.

The implications for gold are good. In the short term, you can expect a rally in gold; though I would expect gold will fall back once Iran capitulates. This will not be the end of gold however, as there is a greater monetary issue in place. Its unlikely either that an 'Iranian war' will impact on global spending because any sense of fear is likely to die outside of Iran's missile range. One would think the US Defense Dept would be monitoring the movement of Iranian ships. One of course can be skeptical of government department's though. But that extends to the conceptual skills of the Iranian government as well. Its like watching two drunks fighting and wondering who is going to win.
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Andrew Sheldon www.sheldonthinks.com

Outlook for copper supply & demand

Here is a forecast for copper demand presented by an emerging copper producer. The forecast comes from the USGS, the US Geological Survey. They prepare a detailed account of all the mines around the world, so theyh have a good picture of the metal inventories, but I would not trust their forecast for the following reasons:
1. The idea that global demand grows by 3% compounding - is divorced from the current economic context
2. When I want an understanding of global market forecasts, the last people I speak to are government depts. They are notoriously bad at forecasts.
3. The amount of copper sold into the market will depend on an array of factors which this govt dept just has not grasped. Once again, I don't look to govt depts for an accurate depiction of the nature of reality, not for a current view, and certainly not a view of how the world will look in 20 years time.

These forecasts are however used by corporates seeking to pip up their stock prices or raise some money. The problem I have with this forecast is that its extrapolating an exponential curve off the top of a government-stimulated economy, and here we are now, just about to go into a period of rising inflation and interest rates. The full context of this forecast can be gathered from IRN or the USGS website.
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Andrew Sheldon www.sheldonthinks.com

Gold breaks support - going to new highs

The price of gold has broken its previous high, quashing any fears of a fall back to support. We are looking forward to gold going over $2,000/oz. Some commentators think gold is over-priced, but there are several reasons why gold is not over-priced:
1. Paper money is being printed by global governments to cover debts
2. Gold rose to $850/oz in 1981, so if you consider almost 30 years of inflation, gold has a long way to go. In fact as recently as last year producers were struggling to stay ahead of costs.
3. Interest rates are very low, inflationary pressures are going to build, creating a negative rate environment. Governments are constrained from rising interest rates by high household debt levels, at a time when people are losing their jobs.
If you want to know more about the political philosophy behind markets, and their manipulation by governments, in coming months we will be releasing a number of eBooks which discuss how these state of affairs have developed, and how they need to be reformed.
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Andrew Sheldon www.sheldonthinks.com

China seeks to use gold as money

Years ago I had an argument with my dad over the role of gold. He saw the fall of gold in the 1990s to $260/oz, and concluded that the problem with gold is 'it no longer has any uses'. What's it used for? I long maintained that it was real money, that it was nobodies obligation. This belief stemmed from my studies at the time on the history of gold. Gold was not somebody's line of credit. It was tangible, it was real, as opposed to a promissory note from the government.
In recent trading gold jumped $45/oz to $1043/oz on news that the Chinese government was proposing to use gold to pay for oil.

According to the Independent Newspaper "The greenback's declining value has prompted the Chinese, French, Russian and Japanese governments to hold secret meetings with the Middle East's major oil producers to develop a new pricing system for barrels of oil".

The significance of this of course is that gold is going to be held by commodity traders rather than USD because traders fear losing money whilst they negotiate market positions. You can imagine the negative impact on traders holding USD as the price falls. Of course in the long term, it matters little. If the USD falls, then the oil producers will simply raise the price of oil to compensate for the diminishing price of oil in USD terms.

In case your wondering, my father still does not hold any gold stocks. There is just no convincing him. I told him there would be a financial collapse too. I reiterated my arguments every time I saw him for 8 years....it took me 30 minutes to get him to acknowledge the fact. Is there hope for gold? I hope he has a strong heart. :)
Of course all precious metals will benefit, but this is particularly good for gold and silver because they are the most liquid commodities, and demand for gold is particularly less impacted by negative industrial demand. But I caution you - the speculative demand for these metals will eclipse the industrial demand. This is of course just the start of things to come.
More news on this story at SMH Online.
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Andrew Sheldon www.sheldonthinks.com

Gold faces resistance at $1000/oz

Gold today is facing resistance at $1000/oz. It reached a high of $998/oz before retracing to $989.20/oz. This is of course just the daily action, and there does remain the prospect of gold breaking this level yet. This has proven to be a strong level of resistance for gold. In fact, we can see weakness to the $750/oz support level.

Gold has attempted to break this level on three occasions - July 14th 2008 and Feb 12th, June 1st and now Sept 3rd in 2009.

One might well ask if gold is likely to break this resistance given the recent expansion in the monetary base. Certainly this is a bullish factor, though without signs of inflation, and the possibility of higher interest rates, I would be expecting weakness in gold before we see further strength. Of course we need not guess these things. we need only watch the market to give us the lead.
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Andrew Sheldon www.sheldonthinks.com

Gold price outlook

The gold price has shown some strength of late - rising $27/oz and $15/oz in the last two days respectively. It is questionable whether gold will break its previous resistance at this point. I am inclined to think that it will not, and that the gold price will once again settle back. These rallies of course make great opportunities to trade. Our view is that the support for gold is the $750/oz mark, though I see nothing which is likely to push gold that low, except perhaps a recognition that the economy is too hot, and the Fed needs to raise interest rates. This will likely occur within the next year. Of course it will never raise rates by the amounts required to rein in inflation; at least not until the dying moments when it has no choice. By this point, based on the following chart, we are expecting gold to reach a level of at least $US2200/oz. Of course this is an evolving story.
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Andrew Sheldon www.sheldonthinks.com

Silver prices close to support

Silver prices have pulled back considerably of late. The $13.75/oz level will likely prove to be support, and provides a good entry point. I would wait for support though since there is downside to $12.95/oz.
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Andrew Sheldon www.sheldonthinks.com

Gold prices poised

It is apparent from the chart that gold prices have fallen back to a support level. If this level holds as I expect it will, then gold will be testing its previous high of $986/oz. I have been very cautious about gold because of the swine flu risk raised the prospect of deflation, which could not be addressed by government pumping more money into the economy. With swine flu concerns declining, I think we are going to see continued recapitalisation of the financial sector, which will mean more paper money floating around or higher interest rates. It remains to be seen how Obama deals with US government finances. My expectation is that the government will seek to raise energy taxes. Higher interest rates are inevitable now.

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Andrew Sheldon www.sheldonthinks.com

Gold outlook in question

The gold price is holding reasonably well at the moment. The metal found support at $890/oz. I do however believe that there is the prospect of gold falling back to $$700-750/oz, though by no means is it probable.
The positive for gold is the extent to which central banks are relying on fiat currency to support their economies. One could be forgiven for thinking that we are over the bad news, but in fact the USA is entering a period of ARM re-sets. Clearly low interest rates will help people survive this period. Another factor likely to support commodity countries like Australia, Canada, is the prospect of China buying up commodities. This of course will make any recession shallower, but it will also make it longer. One would want to retain some exposure to gold, though at this point I would only make that exposure emerging stocks with resource upside, rather than the gold producers trading as a yield proposition. For metal traders, I'd be looking for confirmation of trend before I enter the market, as there is grounds for some rapid moves.
We might yet see gold test its previous high of $990/oz, though I see more consolidation for now, with the prospect of a fall back to $750/oz. I would rank the swine flu as an issue, though of course its hard to say whether this will evolve into something more serious. It would seem inevitable that there will be a breakout as long as developing countries have dodgy animal husbandry standards. A major pandemic would spell a much deeper recession, and a run on banks. I think this would be a negative for gold because its not inflationary, but just a crisis of confidence which will undermine consumer spending. It will briefly cause the market to spike as people buy more food, and we might see some evidence of that in the current quarter. A pandemic is more an issue of perceptions since we need only hide in our houses for a week. But will we all be so compliant and organised. It remains to be seen if this will be a momumental blunder.

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Andrew Sheldon www.sheldonthinks.com

Gold prices poised for a fall

The gold price is poised for a significant fall in coming months after a rally to $1000/oz. The attached chart shows that the metal is on the verge of a wedge break either up or down, and given the strength of equities and new-found market liquidity, I would expect weaker gold for the short-medium term. All of this liquidity will end up being inflationary of course, and I'm sure the various government treasuries around the world have not finished their spending spree.
I can see gold falling to a low of $US700/oz. That fall will like take about 2 months before we see signs of recovery. This will hit gold stocks very hard I think, particularly those struggling with project finance or equity raisings, so I would be looking at opportunities among these stocks in particular. Perseus Mining would be one I would be particularly interested in.

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Andrew Sheldon www.sheldonthinks.com

Gold support at $US880/oz

Gold has come under short term selling pressure over the last few days, breaking support. Given the weakness in the broader market, and the lack of apparent inflationary pressures, we would expect gold to build new support around the $US880/oz level before moving higher. Entry at the current level of $US915 is fraught with downside.
Importantly gold has broken the previous highs set back in Oct 2008, so its worth holding existing positions, or adding to them on weakness for all but the more aggressive traders.

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Andrew Sheldon www.sheldonthinks.com

Gold poised for another rally over $1000/oz

Now could be another good time to make gold investments. The gold price has retraced $60/oz over the last week to $US950/oz, and is poised for a move higher. We can see in this chart that the gold price has consolidated at the current level.
The monthly chart confirms also suggests that the gold price is going higher, though we might like more confidence from thew US market overnight. I am confident.

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Andrew Sheldon www.sheldonthinks.com

Gold oil ratio signals stronger gold

It is apparent that another important ratio we look at to determine fair value for gold is the gold-oil ratio. Its particularly interesting to look at this ratio because the oil price has collapsed in recent months, falling from $140/barrel to $40/barrel. The result has been a rise in the gold-oil ratio from 7 to 28. In recent weeks the gold-oil ratio has recovered to 21, as oil prices rose.
Its apparent that the first rally in the gold-oil ratio (measured on the right negative axis) was caused by the fall in oil prices. Having recovered to 21, I believe the next rally in the ratio to 28 will be in the midst of rising oil prices and gold prices. I would contend that the rise in oil prices will be caused by inflation and a weak USD. One might also attribute cuts in OPEC oil production as a cause however this is transitory since OPEC is going to lag in production cuts only for as long as such adjustments prove necessary.

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Andrew Sheldon www.sheldonthinks.com

Gold destined for $US2000/oz

Some time ago I suggested that gold was destined to rise to $1400/oz price level. In fact based on current movements in the Dow, I would suggest we are likely to see the gold price rise as high as $US2,000/oz. The basis for this forecast is an important measure of relative price value - the Dow gold ratio. Just as you have price-earnings ratios for stocks and housing affordability indices for property, there are ratios for commodities as well; and they are very bullish for gold.
There are several ways you can trade gold. You can buy gold stocks - blue chips or the juniors, or you can buy the metal from the Perth Mint, or a derivatives such as options, futures or contracts for difference. If you have less confidence in the financial viability of financial institutions, then you would avoid derivatives because you will bear the counter-party risk if the counter-party fails. No one talks about these risks. Its just assumed that counter-parties are of good standing. Don't think that rising asset prices will protect you from that risk.
I have extrapolated the charts above. You can see that to get to a Dow-gold ratio of 4 (the historical low) we need to see gold reach $2,000/oz. That is based on a Dow Jones index of 8,000, and we are just above that now. We have this week been given the signal to buy gold exposure because gold appears to be holding above $900/oz. Another solid rise should see it continue higher.

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Andrew Sheldon www.sheldonthinks.com

Dow-gold ratio is quickly moving towards target

The gold price moved over $906/oz again in Monday's trading, giving more credence to the belief that gold is going to rally. Its rather timely that this is happening when bank (broad equities) are reaching an important support level. The Dow-gold ratio is currently 8.91, still well short of the ratio of 4-5 which we would associate with fully priced gold. You might wonder why gold should be fully priced when no other asset class is? The reason is that when its rallying its the only asset class people will have confidence in. Everyone likes a bargain. At this point gold is cheap, and it will remain cheap until it gets dumped.

I expect equities to rally soon. Its the new year, and stocks generally rally at this point, and more importantly stocks have fallen to an important support level. The rally in equities will likely offer good profit potential, but nothing like gold. Already gold equities have been strong for some time now. If you want to know how to pick gold equities - I will refer you to here. As indicated about 6 months ago, based on the expectation of a rally in the Dow to between 8,500-10,000, the gold price could rise as high as $2125-2500/oz. The rise will partly reflect weakness in the USD, but it will also reflect real price gains for gold, so you will benefit in any currency.
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Andrew Sheldon www.sheldonthinks.com