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Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Wednesday, November 26, 2014

Gold Price

Gold still has a chance to be an interesting long side trade, but some ground needs to be cleared

Gold Bear Market
The deep but temporary break below $1200 support earlier this month re-affirmed the bear market
that has been in place since late 2011. It also showed an important break below the long term
uptrend line in place since the early part of 2001. The one bright spot on the gold chart is that
when gold broke the long term uptrend line at 1220 in Sep., there was indeed a breakaway down
move in price, but gold has since rallied up close to prior support at $1200. On the negative side,
there is the possibility that gold may now have the $1200 price as resistance. Weekly Gold

Poor Present Fundamentals
The gold price has been hurt by the deceleration of inflation underway since the autumn of
2011. More recently, weakness in the oil price and a strong US dollar have been negative factors.
Less well recognized is that a rising US stock market since the latter part of 2011 has drawn
risk capital away from the PM markets in a fairly steady fashion (See bottom panel of chart).
Gold had competed successfully with stocks over much of the 2001 - 2011 period and had
attracted the interest of many financial market players and not just the more traditional bugz.
This play has been walked back in earnest.

How Might The Environment For Gold Improve In The Year Ahead?
Quantitative easing has ended in the US. But, it has been accelerated in Japan, and China is
is moving toward more monetary ease. These moves could pressure more Asian economies
to follow suit. Moreover, even the ECB is slouching toward more monetary liquidity
expansion as the EU grapples with very slow growth and flirts with deflation. Thus, economic
growth offshore the US could firm up at some point next year. This might lead to stronger
demand for commodities in general and might reduce some of the excess supply in the oil
market. In turn, a better offshore economic environment might eventually lead to a reduction
in the "fear" trade which has recently favored the US dollar and brought it to an overbought
position. To conclude, there could be a sort of speculative three cushion billiard shot that
eventually benefits the gold market.

This sort of conjecture is not normally my cup of tea, but I am intrigued that the gold price
has been stubborn recently against a downside breakaway that seemed clearly in the cards.

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