Gold price shrugs off early QE end – rises sharply
Despite Janet Yellen’s latest suggestion that the U.S. Fed will complete its latest QE programme in October, gold has risen sharply in price this morning. What gives?
Posted: Thursday , 10 Jul 2014
London (Mineweb) -
Aren’t the markets fickle? Back last year the gold price crashed once it became clear that the U.S. Fed was looking to cut back its Quantitative Easing programme on fears that it was QE that had been supporting the gold price. It was quickly forgotten that the gold price had advanced strongly prior to the term Quantitative Easing even being coined – but the market – with its ultra short term viewpoint – seemed to have assumed that QE and the gold price were inextricably linked and marked the yellow metal down accordingly. This was perhaps prompted also by gold mega-bears like Goldman Sachs’ Jeffrey Currie calling for a fall to around the $1,000 level before the end of the current year. Now things could yet turn back again for gold and it is perhaps too soon to write off Currie’s and other bank analysts’ herd-like predictions as 5 months can be a long time in the gold market, particularly when those with huge pockets, and mega short positions, start to feel threatened. However the past month or two does seem to have seen something in terms of a positive turnaround in overall investor sentiment towards gold.
Some of the turnaround will undoubtedly have been due to geopolitical factors, particularly in the Ukraine and Middle East, which will have helped reinstate some safe haven interest in gold. But it is perhaps most remarkable that Janet Yellen’s latest statement that the U.S. Fed’s current monetary easing programme could now be completed as early as October this year, instead of provoking a dip in the gold price, has seen it rise sharply in early trading today. This is despite an apparent easing in the amount of gold being imported by China – which still remains robust, but below last year’s record levels – and so far no definite indication that the other major gold importer, India will indeed ease its rather draconian import taxes on gold bullion and thus re-stimulate demand there.
There has, however, been a dramatic fall in outflows from the major gold ETFs. Indeed the biggest of them all, GLD, has recorded a small net inflow this year to date of a little under 6 tonnes of gold as opposed to a massive outflow of over 551 tonnes last year. ETF outflows were seen by the main gold analysts as the major cause of the fall in gold prices last year – perhaps not so much for their enormous volumes which were countered by the big Chinese inflows, but for the souring sentiment towards gold as a secure investment suggested by these outflows.
This morning we have seen gold surging towards the $1350 mark ($1343 at the time of writing) and it could all change of course when the U.S. markets open. (Typically the gold price has retreated when the U.S. has come on line in recent days, before recovering lost ground later in the day and overnight.) But the chart analysts are pointing out that the short-term moving averages for gold (say 50 days or less) have mostly moved above the longer term – say 200-day moving average – which to them suggests that something of a breakout may be taking place. If this breakout is maintained then there is the suggestion that gold could revisit its 2014 high point of $1392, or perhaps higher.
We did previously publish something of an interesting long wave prediction suggesting a big gold price surge in the final few months of the year and perhaps this is coming about. Some people swear by such chart analysis and I suspect there are other charts out there showing a different pattern but even so they do make for just as valid predictions as the bank analysts’ projections. One should remember that as a herd these same bank analysts were virtually all predicting strong gold price increases in 2013 – and look what subsequently happened! They are far from infallible.
So, as usual with the gold price, and the various projections, one just has to go with the flow. Someone’s going to be right. It just remains to pick the right one! For me it is the time when the gold bulls all start getting depressed at the same time which perhaps signifies a market bottom – and that has certainly the case earlier in the year!