A Black Friday For Gold Prices

November 29, 2015

Black Friday is a big and usually good trading day for the retail sector; however, for gold prices it was a punch on the nose. Gold suffered a loss of $14.30 to close at $1056.10/oz, its lowest level since early 2010.

Background

It’s been almost 50 months since the gold traded at the dizzy heights of $1900/oz back in August 2011, to the delight of every gold bug on the planet. However, since then it has been a slow grind south with rally after rally proving to be just another head fake. Gold has now lost $845.00 or 44.47% of its value in dollar terms, since peaking back then.

Many have called the bottom for this tiny sector of the market only to discover that the bears are still in charge. The reasons for this demise in precious metals are many and varied, however, in our humble opinion; the demise can be explained in two easy to read pictures.

The US Dollar and Gold Prices

First up we have the US Dollar where we can clearly see that since gold’s peak in August 2011, when the dollar was trading at ‘75’ on The US Dollar Index, it has progressed since then to close above the ‘100’ level registering a gain of 33%.

 

At the same time we have gold which peaked at the dollars low point and has now fallen dramatically since then close 44% lower.

 

We have posted many articles on the importance of US monetary policy and its effect on the precious metals sector which is in our opinion the single most influencing factor. Physical demand, supply shortages, backwardation, the paper gold market, geo-political difficulties all play their part, but none have the weight of the words and actions of The Federal Reserve.

Conclusion

The next few weeks are crucial for gold and silver prices. Firstly we have “Super Mario” Draghi performing on Thursday 3rd December who might well announce more QE from ECB. Secondly we have the US jobs print on Friday 4th December, which if reasonable would increase the certainty of a rate hike in the minds of most analysts. Finally we the meeting of the FOMC on Wednesday 15/16th December, with a better then evens chance, that a rate hike will be announced.

These three events have the power to boost the value of the US Dollar in dramatic fashion. Assuming that there is a rate hike then soon afterwards the dollar will head north and gold will plummet in dollar terms. The January jobs print will be released on the 5th February 2016 and factoring in winter conditions it may be fairly weak which in turn could hamper the dollars progress. However, if it is a reasonable figure then the dollar will continue to climb. At this point gold will be down to triple digits and may just establish a final bottom.

We are still of the opinion that this bear phase in gold is not over.

Our strategy is to keep our gun powder dry as in US Dollars until we get either a serious spike down or signs that this bear phase has run its course and is now exhausted. We are eagerly awaiting with great anticipation the return of this bull. We have also short listed a number of stocks which we expect to rise in multiples of the gold and silver price rise. This list is constantly being honed in an attempt to select only those stocks with the greatest likelihood of success. As we all know a week can be a long time in the life of a gold or silver producer so staying on top of each unique development is imperative.

If you are new to this sector of the market may we suggest that you start your work right now as the next month or so could herald changes of such magnitude that you will be caught unprepared and possibly panicked into decisions that you may later regret.  

Disagree? Then please fire in your comments.

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The periodic symbol for gold is AU which come from the Latin for gold aurum.