Gold Price

Gold price direction fundamental indicators have turned positive over the past couple of
months following a nearly 18 month bout of weakness. With gold, I follow Fed Bank Credit,
the oil price, industrial commodities prices and global industrial production. The trends in
these indicators provide a decent enough picture of whether the gold price should be moving
up or down but viewed historically, only the oil price has provided helpful guidance on the
magnitude of swings in the gold price.

Right now the fundamentals plus my micro analysis of what the gold price should be based on
costs and a profit margin sufficient to encourage direct reinvestment suggest a gold price in a
range of $1050 - 1100 oz.

However, the gold price can also carry an enormous premium if enough investors and traders
become concerned about the potential for acute, systemic economic and financial crisis. On
the flipside, the gold price can languish when large crises are not perceived to be on the radar
as transpired over the 1983 - 2000 period.

When gold briefly topped $1900 in 2011 when fears of a Euro and EZ collapse were acute, the
crisis premium was 100% above what the ordinary fundamentals suggested. Now the crisis
premium is down to 54% as market players have become less worried about a serious blow up
in a prime economic region such as the US or the EZ.

If there is greater cyclical strength in the global economy this year, but players take this trend
as a signal that further, dramatic economic and financial upheaval may be averted or greatly
delayed, traders may opt to look for greener pastures for their money than gold even if the
ordinary fundamentals remain positive.

The daily gold chart does show the tensions in the market. Crisis fears have abated significantly
since the 2011 all-time high, but gold is nevertheless trading above the $1550 oz. support level
seen in 2012 and just as central bank chairs Bernanke and Draghi declared for fresh QE.
Daily Gold Chart

One move for traders as discussed last week (below), has been to rotate money into equities.