The New Gold Seasonal Trend : Weddings and Festival Time Shamik Bhose on September 7th Wednesday at 2.

05 PM IST
Good afternoon, Absence of correction consolidation in gold makes us a little jittery as well. I predicted 2200$ or 32,000/-Rs per 10 gms to ET Now Channel's Investors Guide programme over the weekend, but for Nov'2011 ; diwali is during late late October. Methinks great volatility and brutal one day corrections shall be the norm now as everybody and their mom-in-law is gung ho now about gold. Shakedown the weak hands, but if there is sovereign buying lurking beneath the sea's as suggested( and this was a latent theme earlier as well just before Helicopter Ben's Jackson Hole star turn)then all rationale bets are off probably.

Silver will be on good run now, suddenly spurting towards 50$ and beyond. Local stockist mood suggest too much bias for gold...that usually means silver will move faster.My suggestion of 3000$ in 2014 during 2010 survey for Resource Investor seems to have been conservative. Consensus is towards 5000$ and consensus is usually not a good bet. We are in a time when you have to look at much longer cycles than the one traders and technical analysts like to use and that is no longer than 5 years and sometimes 20 years but no more. It's time to look and pay attention to 60 and 100 years cycles.....It shows that gold is a constant (not in the scientific definition but close). It just maintains its value in real terms. See what happened to gold since the introduction of paper money in 1900. Gold in the long term is just hard cash. It just maintains its value. Its not gold going up but paper money going down.

To judge if Its the value of money going down . Look at food prices going, thats demand plus shortage and then the funds activities . With gold and silver- to a certain extent its the fear that is rising. What might happen? One of the men in that list i posted from Resource Investors is Jim Sinclair. He had a theory about gold being valued vis-a-vis dollars in circulation and total dollar denominated debt due.

I do not know if this will include all the leveraged bets and CDO's of today but given the total dollars ( notional value) in circulation where should gold be priced. Mr.Sinclair said between 790-880$ in 1979-80 and apparently sold out around 840$. Now he predicts 12450$ value for gold. Weird or spectacular ? The unwinding of leverage that Satyajit Das(Traders,Guns & Money) predicts will turn 99% of banks insolvent and the Great Contraction that Ken Rogoff talks about to bring sanity to asset prices , if they are postponed or glossed over does gold go those levels ? For that we need to answer a question , where and how far down in real terms and how fast will paper money values go ?

Over the last 10 years gold has gained on average 10% in the period between early August and year end. This solid and quite consistent gain may in part underscore strong seasonal gold buying and it may in part reflect weakness in the equity markets which is often more pronounced at the end of the summer period. By rights we should in a typical year have made gains of 8% YTD with an additional 10% to be enjoyed by year end. Gold really has been remarkably consistent as well as accommodating. Well 2011 is looking different.

Gold has gained 34% YTD and we are only one week into the buying season. Looked at a different way, gold is 27% over its 200 day moving average which indicates that it is currently over-extended. All things being equal we should have seen a correction or at least a reasonable period of consolidation but we seem to have by-passed that nicety and gold is demonstrating a keen-ness to move much higher. In short, gold is becoming a little un-gold-like in that it is pandering to mass appeal - instead of quietly performing its role as a wealth preserver.

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It has been clear for quite some time that physical retail gold sales have been strong and is underpinning this market. It is also clear that despite modest buying in the West, in the East they quite literally have cannot get their hands on enough.But the scale and speed of buying seems to exceed even those very significant factors. My hunch which is yet to be borne out - is that there is quite probably some central bank buying supporting this market.

Although overbought, we would not be surprised to see gold edging towards fresh highs at $1914 in the next few days although it is difficult to what the stimulus will be that takes it through. At this time it is the bulls have the whip hand and it is for the bears to prove their case. What also seems to be going on is the fact that the gold market as a whole, has a set value (as in you can add all the gold up that has ever been produced and work out the total). If estimates are correct, there has been around 158,000 tonnes of gold produced so far (or 5,079,817,925 troy oz). At today's price this would give you a nice big total of $9,651,654,129,320 (just over nine and a half trillion dollars).

Now if you compare this to the current US debt of $14,715,060,463,781 (just over 14 and a half trillion dollars), you can't help to notice how small the gold market really is, compared to just one debt figure. As more and more people keep turning to gold as a safe haven, and the price continues to rise,

we will continue to see more large spikes and corrections in the price. What normally would have been a nice and steady $10 correction is now a fast and rampant $60 fall (and sudden gain), and the problem is that both of these scenarios happen on the same stimuli (in this case profit taking and save haven appeal). One can only hope that gold can float like a butterfly and sting like a bee, and not the other way around.

Is Gold on a Bubble Zone ? Or is it reacting to a perfect storm of factors ?

by Shamik Bhose on Wednesday, August 24, 2011 at 2:06pm

With $2000 and 2500$ per ounce being one of the louder numbers being whispered on peoples lips, the potential for the bull run to step up a gear seems to be more substantial each time a negative story about the US is published. With the world sticking to the saying When America sneezes the rest of the world gets sick world wide economic worries would seem to have the wide shoulders to carry gold kicking and screaming to this magic number all by itself. However, we would then have to contend with a potential gold market bubble, which for a safe haven asset would be dangerous territory indeed. Golds major strength in the last 5000 years has been its stability, its ability to store wealth in times of hardship and to protect your saving from becoming worthless. At this point, in time we can see that gold is reacting to a perfect storm of factors in the shape of high demand from China and India , a weakening US Dollar, mine supply decreasing year on year, sovereign debt crisis in Europe and an increase in worry in the market as a whole.

In most of the last 11 years we have seen gains in gold prices of between 18% and 22% - this year we have seen 32% and we are yet to enjoy the fourth quarter which is traditionally the strongest quarter for seasonal factors. It is tough

determining the level or price which represents 'fair value' and when one has moved well beyond it. That said, the parabolic nature of the gold price chart in the last few weeks suggests to us that we are ahead of ourselves and that a pull back or correction would be a healthy one.The Fibonacci Extensions suggest that $1915, $2111 and $2232 are top price projections - take your pick..... probably Friday (we always seem to have the big moves up on a Friday afternoon London time).

But, Let's not be too greedy. Jackson Hole this Friday MIGHT just provide that turning point.At what point does gold go from being simply overbought and actually into a bubble phase ? It's a question well worth pondering as we seem to be on the cusp of both. We do hold to our view that gold is in overbought territory technically. Long term investors looking at a 30 week trend for gold will have seen gold extend 20% beyond its trend line only 3 times since 2007 and in the last 2 occasions (March 2008 and December 2009) it sold off sharply and reverted to its mean. We are there again today at 21% above the trend. Bollinger bands are also a good guide and show the deviation of prices from 20 period average points on a weekly chart - a similar gauge if you like. We are presently beyond the upper limits of the bands again, suggesting that gold is technically overbought. These guides tell us gold is due a rest.

There is not a particular price point at which we could say that we are in a bubble - it is the manner - or speed - of getting there that defines it. This bull run has been 11 years in the making, it has been founded upon solid supply/demand fundamentals - it has been accelerated by innovation on the demand side and some extreme macroeconomic factors which to our minds justifies the current price; as such, the gold price is inherently strong and has resilience.With the gold price again reaching a record high today of US $1878 - continually close to breaking this at time of writing - and with economic woes seeming to carry on for the foreseeable future, the outlook for gold, in its natural safe haven mode, is strong. As gold gallops to a fresh record highs and is performing its roll in measuring sentiment in the financial markets, in this sense the tiny gold market is a classic case of the tall wagging the dog and in that regard, gold is telling us that the financial market are under severe stain and is incumbent on policy makers to pull together clear long term plans to resolve the crisis.

In the short term, there will be enough steady interest in gold (from negative market cues) to keep us moving up at the current $1860 / $1880 range but unless there is a new major crisis popping up anytime soon, we feel that gold is currently over-brought and should see a small correction. However, as with most perfect storms there is always an air of uncertainty that under-lays most systems, and a single factor such as more countries following Venezuela's lead or yet more debt downgrades, could easily push gold closer to US$ 2000 this year.The markets are awash in a sea of red numbers (FTSE down NASDAQ down S&P 500 down and with continuing knocks to the confidence of investors, the gold prices of the past will be a distant memory, even the first Gold Fix of 2011 seems strange to look at as its only US$1,410. If someone told me that 10 years ago the gold average used to be around US $260 I would call them a liar (and then secretly check on Google to see if it was true). We recently wrote that a period of consolidation would be 'constructive' for gold before moving higher, possibly even a flushing out of weak longs on CME before stabilising. Fat chance. Recent economic events in both Europe and the USA ( US debt re-rating and banning short -selling in Eurozone coupled with buying of Spanish and Italian debt) were politically inspired economic stop gaps. No more. We are yet to see long-term sustainable policies in place to put the overindebted nations back onto the path of financial probity. What we read in gold's price action is that clearly the relief rally (in equities) from these recent policy decisions have been brief and the market remains impatient and skeptical. So are we in a bubble - our view is no but the potential to be so is very much there if the FED starts the ball rolling on a QE 3 at Jackson Hole this Friday

Why were we wrong and what does it tell us about the psychology of the market ?Technically gold is in overbought territory by any number of technical measures on the charts - be they bollinger bands, RSI (Relative Strength Indicator), MACD Indicator, Fibonacci extensions or Elliot Waves. Gold's failure to adhere to what chartists would tell us is reasonable behaviour - that is continue to rally when by rights a period of consolidation or profit-taking would be expected suggests that gold is either simply not in technical "mode" and that other external factors are driving us higher or that we are in a panic phase which inevitably leads to a blow-off at the top. In short, long gold has been a wondrously profitable position to hold but a degree of caution is now in order

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