Gold prices likely to consolidate

Gold prices are probably likely to retrace in the next week or two, given the price has returned to its previous high. The uptrend line is just an approximation, so you might want to look at a longer term chart for a trend-line support. But we can however expect some consolidation in the $1650-1780/oz range before gold advances. 

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Gold rally taking us to new highs

Several months ago we alluded to the current gold recovery that we are seeing. We are looking for gold to challenge its historic high set back in August 2011 of around $1850. We believe that this 'flag structure' is about to see gold rise $600/oz above this previous high, so we are looking for an ultimate price for gold of $2450/oz in the coming year or two.
A lot of rationalisations will be made to justify this price movement, as well as rationalisations to reject it. The most common arguments are:
1. Low mine output - annual mine production is just a small fraction of the amount of gold in existence. Ultimately it is only speculative demand which drives gold prices, relative to supply of course.
2. War in Iran - Really it is only the uncertainty over monetary unit values which drives the demand for gold.    The prospect of war in Iran is only significant if financing war is considered to be a significant cost on society.
3. Interest rates - The low return on bonds and equities is a compelling reason to hold gold; and this is the state of the current market.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Outlook for gold prices

The price of gold is currently consolidating around above $1550/oz. I fully expect that the price will move higher, though I see no hurry in this regard given the current crisis in confidence. The ultimate strength of gold will be the twin issues of:
1. Greater economic confidence
2. Lower interest rates - low bond yields
3. Few other places to place your money - aside from Asian/Latin American property yields

From this chart, you can see scope for a short run rally to $1650/oz, but we will eventually see a rally in around 1-2 years to $2400/oz. Watch for that break-out!

Source: Kitco

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Don't read too much into Chinese GDP figures

Australian markets are down today. Not surprising - the commodity markets are down. The question is - should they be down? Well, the purported reason for them falling is the 'concrete' reason that China has just reported that it is forecasting annual GDP growth of 7.5% in 2012 rather than 8%. One has to be suspicious of this number however for a simple reason - the Chinese government is:

1. Highly centralised

2. Even autocratic leaders need to depend on market info

The question is - what is deciding the reported forecast of Chinese economic activity. There are several possibilities:

1. The government bureaucratic analysts are looking at market trends - clearly this is not likely because they have a habit of always understating growth

2. The government bureaucrats are performing a market survey to assess market demand for commodities, demand for their products, and these forecasts are relatively negative, i.e. This could be because Chinese manufacturers and traders have a tragic, cautious nature....but alas the economy is growing fairly strongly. The other reason is that Chinese traders are advising the government that demand is weak because they want to drive market perceptions down, so they can buy commodities at lower prices.

3. Chinese commodity buyers, traders or manufacturers, are paying kickbacks to analysts to talk down prices and economic activity in China, so that international commodity prices fall, so that they can buy commodities lower. They can later in the year adjust their prices.

I favour this last approach because a lot of commodity prices are set on the basis of annual price negotiations; and they tend to occur in March or April, i.e. so these Chinese GDP figures are rather timely for the traders. I have over the years seen a great deal of corruption in Asian markets. Rest assured the economists studying PhDs in Canberra take Chinese bureaucratic numbers as gospel - but that is because there is no implication for their papers. i.e. Their salary is extorted from you the taxpayer, where you have no discretion. The trader has discretion, however they are responding to the 'news'; so I suggest they will be buying in coming weeks. I see copper prices are testing previous highs; and lead can go higher.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Focus on copper and nickel

Keep an eye on commodities in these times - particularly copper and nickel, as they are always the first to respond to signs of life. You can watch these commodities at:

1. Copper

2. Nickel

Please note our review of the economic outlook in 'Market Commentary'.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Short term upside to gold

You'd have to be a little more positive about gold at these times; principally for 2 reasons:

1. Prospects for ongoing low interest rates

2. Prospects of tensions in Iran, the Straits of Hormuz - as Iran borders the channel through which oil exports flow. This issue is of course escalating because Iran is building a nuclear weapon.

The reality however for gold is that its going to be a short battle, with the US eventually destroying key military capacity, the nuclear facilities, as well as retaining air and sea superiority.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Dubious outlook for metals

The current gold market suggests we might be looking at a change in fortunes for the gold market. This next week will be telling; but we might be looking at an overall weak metals market. This would spell a more compelling argument in favour of agricultural commodities in the short term. The problem of course for gold - despite the debasement of global currencies - is the very strong underlying fundamentals of global market liberalisation that have continued unabated since the 1990s, if not before. Earnings in Western countries have remained flat, which means the productivity gains have accrued to businesses to be sure, but also to 'cheap labour' in the third world, whilst more Westerners live off benefits.

We can probably expect a weaker commodity outlook for the next year, but we might see some selective recovery before long, i.e. copper. This of course will not be the end of the commodities story. We are still looking at a commodities 'super-cycle', but things will be off in the short-run, at least in metals. I tend to think agricultural commodities will hold up better, but this is not my market of interest generally.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

The gold price set to rally in coming months

I am expecting a rally in gold prices in the coming months as the central banks deal with their financial crisis. The gold price has been consolidating around $US1700/oz, and this is a support level. I am ultimately expecting the gold price to reach a level of around $2400/oz.

Check out our gold equity blogs for the best entry into Australian and Canadian stocks. Not all gold stocks are over-priced. There is some good value among the emerging stocks; though one needs to look for those stocks which are sufficiently large or supported by private equity to raise fnance in these troubled times. I've seen a number of stocks simply collapse because of difficulties raising capital. One which we like is Base Metals Ltd (BSL.ASX). I would not be surprised to see this company go into voluntary liquidation in coming months if it cannot attract the support of a Asian investor/metal trading house/base metal consumer. The company appears to be under-capitalised; not a desirable quality in the current market with the strong $A.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Gold prices find support

Gold fell to $1540/oz overnight before recovering to $1615/oz at the end of trading. As is typical with commodities, the spot price temporarily breached its support level of $1580/oz. We can expect to see the gold price consolidate at these levels before rising to new highs. Unsurprisingly, the Dow Jones Index is up 226 points today, after reaching an important support level 2 days ago of 10,600pts. The market can be expected to remain volatile in the short term.

Importantly, whilst there has been a 20% correction in the gold price, the weakness in the AUD has resulted in the gold price in AUD terms falling to just $1650/oz. These are still very good gold prices upon which producers can sell output. Its not over yet.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

EU demands gold reserves as security for Greek debt

This announcement that Greece and other countries in the EU are being asked to support future loans with their gold reserves has to be seen as good news for the gold price outlook. It provides some legitimacy for gold, after long considered of no value.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Rare earth elements (REEs) - demand side remedies

The Japanese government is planning to spend Y166 billion on 160 projects to reduce the companies reliance on Chinese rare earths, as well as to advance certain global projects which in the long run would reduce its reliance upon China as a supplier of rare earths.

The biggest beneficiary of China's curtailment of rare earth exports is Lynas Corporation, the ASX-listed company. If I was a Chinese regulator, I would be investigating the share register of Lynas Corporation to see if there are any Chinese shareholders engaging in insider trading, as its so easy to profit by trading in a third-party jurisdiction from actions taken in another. This is why regulation is mere rhetoric. The auhorities are so far behind the times. I laugh when the authorities were monitoring share trading of executives on the main exchanges, whilst people were no doubt trading in 'derivative exchanges', i.e. Contracts for difference. One does not even have to trade the exact same security, just a security which is related to it. i.e. Rare earths is to Lynas what the 3mths platinum contract is to the spot platinum price. Just find a causal correlation and you can profit.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Gold prices set for another rally - Feb 2011

The start of a mighty rally is about to unfold. The following charts show on a short term scale that gold has broken a recent short term high to achieve a new high, and that it has in fact changed trend. The 2nd chart shows the long term trend, with the prospects for a rally up to around $1,800/oz expected over the next 12 months.

We will be looking for gold to rally to the previous highs around $1425/oz.

Visit our speculator's blog for the best entries into exploration stocks, since this end of the market is the most undervalued, and stands the best chance of benefiting from resource upside, takeover activity, revaluation of resources, increases in gold prices, including the opportunity to lock in high priced gold hedges.

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Commodities taking a lead - gold and copper

I am about to go out hiking, however I note that gold is breaking out into a new uptrend. We have also seen copper prices reach new highs of $4.63/lb. These are what we might regard as the post-Xmas commodity-equity market rush of blood that we like so much. Charts to come later. Its a beautiful day!

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Gold prices set for another rally

Gold prices have bottomed on Friday, and we have seen a rally of $21/oz in Friday (night) trading in the Comex market. The implication is that gold has found support on its long term uptrend, confirming what we always knew was going to happen; that gold was going to rise to new highs. Our interim target is $2,400, however in the medium term we can probably expect a move to $1800/oz.

There are a number of factors giving strength to gold. The prospect of failing monetary policy demanding any effort by the US and other countries to stimulate demand. There is the prospect of escalating tensions in the Middle East. Oil and gold prices alike are likely to be very strong in the next year.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Outlook for uranium on the slide

I have not been a big supporter of uranium stocks and the recent news that China has developed a process for reprocessing uranium could only add to the downside. There is good reason for thinking that China will explore this process route to reprocess nuclear waste for power generation, however at the end of the day, there is no shortage of uranium resources. I think Australia alone has enough to last the world 7,000 years, and that is kind of by tripping over the stuff accidentally looking for more 'PC-friendly' minerals.

The problem for uranium is not the fuel cost it is the capital (plant) cost. The benefit is that reprocessing will at least mean reduced waste disposal issues, and probably total desensitisation of that issue, though of course waste and reprocessed fuel still has to be transported to and from a centralised facility.

Uranium prices are still high I think but that is just because of the high cost of alternative energy resources. If more nuclear plants are built, other fuels will fall. The problem is - too many people are opposed to nuclear. One of course has to worry about the management record of Chinese plants; particularly as the management of Japanese plants has often been shaky. There have been a few scares in Japan, but the new designs in China ought to be 'fail-safe' in design; assuming they are properly constructed 'to design'. That is the worry.

The Japanese will be very nervous since they are down-wind. The prospect of China importing a lot of fuel has to be good for Australia in particular, and probably some Russian and Canadian projects. Picking the winners to benefit from Chinese support - good luck with that! I'll still with gold, copper, as its easier to sell.

Source: New Chinese Nuclear Technology and Waste Fuel Reprocessing.

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Andrew Sheldon www.sheldonthinks.com

Gold still has some downside before resuming uptrend

I would not be surprised to see the gold price fall back to $1255-1300/oz level in the short term, however that ought to be the basis for a very solid run. I don't even expect gold stocks to flinch if that happens, as we approach the reporting season. There are several issues which might hold gold though.

We can expect a post-Xmas rally in gold, though in the short term, there is the prospect of a greater correction. Don't for a moment expect that long term uptrend to break.

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Andrew Sheldon www.sheldonthinks.com

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