Wednesday, 7 October 2009

The Gold Breakout - It's Impressive

While it doesn't seem to have hit the popular headlines, gold has made a powerful breakout from a period of sideways trading, achieving new $ highs. It's also looking good in all major Western currencies except the mighty Aussie dollar, and of course looks best of all against sickly Sterling.

Most notable, from my perspective, is how tight has been the bid-offer spread in the early stages of this move (only just losing its shape a bit today). To me this suggests (a) some very purposeful buying, and (b) the big players have been confident that this is for real.

There is of course no end of conspiracy-rumours concerning the gold market but I have none of my own to offer, merely the observation that it seems entirely possible this is a distorted market in which
Someone probably knows exactly what's going on. So it's hardly without its risks.

In the meantime I repeat my own modest (and hardly novel) theory: gold is a hedge against Bad News, not inflation: so watch out for some more Bad News ... Oh, and the usual declaration of interest -
long ! (physical)



Old BE said...

I have missed the asset/commodity correction, so I am sinking all my soon-to-be-worthless cash into wine and consumer goods.

Demetrius said...

Blue Eyes. Why bother with consumer goods? Any road on, watch out for the real interest rates.

Electro-Kevin said...

Today I've seen one stall and two houses with "We buy gold for cash" signs outside.

What with the adverts on TV I've never seen anything like it in my life.

Steven_L said...

I thought exactly the same thing when I came in from work the other day and saw it had shot to $1040, I even thought about buying some.

I'm happy having just made all the money back (and a bit) I lost shorting the FTSE a few weeks back on that long oil trade though and have withdrawn my annual cfd profits of a couple of hundred quid to buy some more fishing gear instead.

I'm hatching a cunning plan to try and weedle one or two of those elusive pike out of Loch Lomond next summer and it involves a lot more gear than I have at the moment.

I can feel myself turning into one of those sad people that shelter in little green bivvies for days on end. Depending on what sort of coverage 3 have maybe I could rig something up involving a car battery and trade gold on my laptop while I'm waiting for the bite alarms to scream?

James Higham said...

Have you seen the CEBR projections overall though, Nick?

CityUnslicker said...

Having been a gold bug for so long, I am not so much now. Gold up in line with the FTSE and the Dow, it crashed in line with them too.

$ Gold up because the dollar is tanking and Obama is keen to let that happen.

My hunch is still gold will correct after diwali - time for another paper short then (glad I close dmy last one though at 996 having stuck it on at 1000!)

Anonymous said...

1)The true reason for the breakout won't ever hit the popular headlines.

2)tight bid-offer, - - yes, except yesterday. let's see today. Your a) and b) assumptions are correct. Through agencies

3)Break-out from pennant, - TA suggests target in 1200-1300 range.

4)Conspiracy theories mean nothing. This breakout is a flag. It has a very valid reason, in fact, a few. It is also long-term, and thus investable.

Eventually currently short bullion banks will be long. Maybe GS is now, covertly.

I'm guessing more deliberate, sanctioned, derivative defaults coming from Asia soon.

They are properly, justifiably, pissed.

Much of what is hitting the news now is political jawboning ahead of the next realignment of the SDRs in 2010 after the recent summit in Istanbul to discuss this very topic that the news people in the US are denying ever even occurred.

"The basket composition is reviewed every five years by the Executive Board to ensure that it reflects the relative importance of currencies in the world’s trading and financial systems.

In the most recent review (in November 2005), the weights of the currencies in the SDR basket were revised based on the value of the exports of goods and services and the amount of reserves denominated in the respective currencies which were held by other members of the IMF.

These changes became effective on January 1, 2006. The next review will take place in late 2010"

The current composition of the SDR, as calculated in 2005, is:

"The value of the SDR was initially defined as equivalent to 0.888671 grams of fine gold—which, at the time, was also equivalent to one U.S. dollar. After the collapse of the Bretton Woods system in 1973, however, the SDR was redefined as a basket of currencies, today consisting of the euro, Japanese yen, pound sterling, and U.S. dollar."

"With effect from January 1, 2006, the IMF has determined that the four currencies that meet both selection criteria for inclusion in the SDR valuation basket will be assigned the following weights based on their roles in international trade and finance: U.S. dollar (44 percent), euro (34 percent), Japanese yen (11 percent), and pound sterling (11 percent)".

You seriously think that ALL other G20 nations combined, other than those mentioned, will be happy with a 3% allocation in the basket?

You seriously believe that when other nations achieve a proper weighting, that the west can sustain current levels in the index?

You seriously believe there will be no devaluation in western purchasing power, and this won't lead to inflation, whatever the output gap?

You seriously believe that sterling can maintain its place?

Economist eyes focusing purely on internal national economics, and forgetting international movements and implications thereof, are myopic at best, criminally negligent at worst.

Merv King knows, Bernanke knows. That's their game plan. It's their only plan. - - with a few reversals en route, although with the dollar carry trade, the dollar becomes less and less a safety play.

Add in the Gulf states, France, Russia, Japan, and a few others demand for a new oil purchasing currency that is 50% GOLD backed (at what value, I don't know, but someone obviously has ideas) released by the Indy paper a few days ago, a story that, although denied, relates to discussions going on for years, and now receiving new urgency, and is true, and you get exited by the investment possibilities.

Anonymous said...

Explained, WOW!

Anonymous said...

There are continuing rumours of an approaching 'corner' in the gold market, and troubles at the Comex and LBMA. There is even talk of a temporary partial default on delivery from a major central bank. We can only watch and wonder.

Nick Drew said...

thank you gentlemen, a cracking thread