GOLD PRICES : SHORT SELLERS BUT AS YET NO BLACK SWANS

 

Black Swan at Martin Mere.JPG

BEHIND RECENT ACTIVITY IN GOLD

A sustained rally in gold prices could follow a financial catastrophe  or  other so called  black swan event.  Some commentators  continue making the case a financial catasrophe is imminent  – a case they have been making for years. But  the recent Chinese currency devaluation isn’t a black swan event. It’s a legitimate decision made by a sovereign nation .

 

The following August 13th chart reflects speculation and short covering following China’s currency announcements.  While fundamentals for a sustained gold price rise  appear negative a squeeze on short sellers may supported the modest bounces.

 THE FEAR, LOVE & TRADE TRADES:

Pundits like to make the case  gold demand follows  fear trades and a love trades.  The fear trade moves markets  when global economic or political conditions are precarious and gold is being bought as catastrophe risk insurance. The love trade moves markets when buyers are active in China, India and other regions where gold remains  a traditional store of value.

However, while the fear and love trade are part of the demand story, markets also  respond to speculation . The trade trade.

Recent modest  gold price advances appear to have  been driven by  trade trades. Some buying in response to the China devaluations followed by a squeeze on short sellers and  a price bounce.

 

GOLD AT A REASONABLE PRICE:

Mining costs are a key factor in determining reasonable prices and, if gold is bought at a reasonable price,  owning it as insurance against black swan events  and major corrections in financial markets can make sense.  Should market prices for gold fall below levels it can be mined profitably supply will probably fall, demand will exceed supply and prices will adjust.

Metals Focus  report on mining costs for the industry . Their recent analysis reveal a significant portion of production is already at a loss and at current levels there is the potential for substantial production lshortfalls.  Metal Focus’s findings are detailed in this recent  Kitco comment

 

For further analysis on gold supply, demand and prices please contact:

TheGoldwatcher@icloud.com