Steen Jakobsen, Saxo Bank CIO and chief economist, emailed a chart of gold last week with his comments on what the chart means. I meant to comment on his comments at the time, but will do so now.
Gold Trendline
Gold has broken the neckline of the downtrend for the first time in years. What is it telling us?
- That policy makers will go deep into negative yield?
- That inflation is coming back?
- That the US$ about to sell off?
I pinged Pater Tenebrarum at the Acting Man blog with Steen’s comments. Tenebrarum responded with thoughts the same as mine.
“The main message is that economic confidence and confidence in policy makers are faltering. The precise consequences (price inflation, ever crazier policies, cross-currency rates) are actually a side show.”
Mike “Mish” Shedlock
I think that more important than the trendline drawn, is the trendline from 5/13 peak through 1/15 peak.
That trendline, while nominally (and hopefully significantly) broken, is not definitely broken yet: there is still time for policymakers to slam it.
The gold price will be range bound until the inevitable decline of the USD. Amazing how long the financial elites have kicked the can. But the brick wall is fast approaching. Within 3 years gold will shine, but silver will go ballistic, primarily because the gold/silver ratio of 80+ is absurd, considering that the global production rate is only 10:1.
gold is famous for a ‘fake-out-breakout’………i believe we are seeing that now…..we get a new local low as the dollar heads up again before it takes off for its wave 5 up run to higher-than-most-think.
Gold is trending higher with the threat of NIRP in my mind. Sure I may not garner interest on gold but at least I am not handing money over to the banks investing in gold. I hopped back in and bought in October. Purely physical and no I cannot afford a lot of gold but holding it in my hand is better then holding fiat currently.
Personally my concern is the government once again trying to confiscate gold. Did not work when FDR did it, the gov only got 20% of the gold. The gov could simply outlaw using or buying gold altogether. I think with NIRP coming, banning of holding cash, and other capital controls, the government may try to kill all PM sales and transactions.
The Fed, Gov and CB’s are getting desperate to keep these charades going on as long as they can and they are running out of ideas.
Two main reasons for golds rise: lack of faith in global central banks + lack of faith in Fiat currencies in general. Cb wizadry works until it doesnt and i always found it fascinating how the markets decide when that occurs.
Other reasons could include decline of USD, rising inflation expectations, etc, but obviously these aren’t the main drivers of late
When you buy gold, the cash you use goes from you to the seller.
You get the gold.
What does the seller use the cash for and why did they sell in the first place? If gold was / is such a great investment, why not keep your gold and watch it rise in value? Why exchange your gold for ugly cash?
I never understood this. Any explanations?
People have differing needs at differing times. Gold is obviously not an end in itself. It is the power to purchase, frozen in time, available for liquidation at the time & place of the sellers choosing.
Why did he sell his gold? Perhaps he sees the “bottom” in oil, and decided to put some skin in the game. Or maybe his crack-head daughter is in jail again. and he needs to bail her out? Who knows?
Thank you. To me, gold is just something you can sell later, hopefully for more money than you paid for it. Gold is a store of value, like rare stamps or art or equities.
Too often, it’s written about as if it is mystical or of religious or subversive significance. I guess it takes all kinds to make a market. Stocks have non-gaap valuation explanations. Gold had conspiracies.
@cdr,
miners and dealers are in the business of selling gold. They move product like any other seller of goods, for profit.
An extremely small number of gold transactions occur people-to-people; the vast majority are between actual coin dealers (who sell gold as a living) and the general populace. I am surprised that you do not know this.
“An extremely small number of gold transactions occur people-to-people…”
No offense intended, but honestly, how would you (or anyone else) know? One of gold’s great virtues is its anonymity. Perhaps there are very few person-to-person gold transactions; perhaps there are millions.
That’s why central banks demonize it so much.
“Gold has broken neckline of downtrend for the first time years. What is it telling us?”
Another financial crisis afoot.
Not surprised bankster Steen makes no mention …. or suggesting weakening of $US as possible culprit.
King Dollar here to stay (for now).
Excuse my profound skepticism about TA, but the upper “trendline” does not cover more than one third of the maxima on the chart and the horozintal line is equally arbitrary. Neither has an iota of value in predicting future prices.
The horizontal line is indeed incorrect.
The sloping line is correct.
Mish