Reasons For Gold’s Weakness

5 Comments

• January 10 2012

  S.D says:

  Jeff notes the following short-term reasons behind gold’s drop:
  
  2. The dollar has been rising. Money fleeing the Eurozone has to go somewhere, and some of it is heading into US bonds, which means first converting the foreign currency into dollars.
  
  Is there a reason somewhere anywhere is not gold, which has been running most brilliantly prior?  What makes the US bonds attractive compared to gold?
  
  Indian demand is a significant factor in the gold market. The World Gold Council reports Indian consumer demand for the year ended September 2011 as 1059 tonnes compared to world consumer demand of 3427 tonnes, or 31%. Greater China is not far behind at 809 tonnes, or 24%.
  
  So really, the rise and fall of gold, just watch these two nations' buying patterns, and maybe their currencies too? 
  
  Is it really so simple?

• January 10 2012

  Mike says:

  Hello Bron,
  
  
  
  Love the new format. One suggestion for these "new format articles" would be to index them. So, in this case, you would have an Index entry for "gold weakness". Other possible index entries could be (a) leverage, (b) bullion banking, (c) misconceptions debunked, etc. An obvious article applicable to both (a) and (b) would be Jeffrey Christian's "Bullion Banking" article.
  
  
  
  There is a need for quality forums/blogs, as you well know. And a precious metal investor has to invest an awful lot of time in order to learn how to sift the wheat from the chaff. Wheat = 2%, chaff = 98% of all blogs.
  
  
  
  Cheers.
  
  

• January 10 2012

  Bron Suchecki says:

  SD - bonds and cash are traditional safety assets, not everyone has bought into or understand's gold role in this respect.
  
  With India and China representing 55% of consumer demand (and a fair bit of central bank buying in recent years) they are key markets. Unfortunately it is not that simple - I was just highlighting the Indian market as another factor to consider.
  
  I have just received an analysis from Goldman Sachs with this assessment:
  
  "Our view is that a lot of shorter-term momentum-driven money moved into gold in the run-up to the September price peak, and that the subsequent correction occurred because of profit-taking by shorter-term investors. The defensive money has not pulled out of the gold market to any material extent, but we would expect fresh inflows if the situation in Europe continues to deteriorate, or if a new phase of quantitative easing poses fresh uncertainty for the value of the USD."
  
  Mike, I'll have a look at a more meaningful index/category system.

• January 10 2012

  S.D says:

  Thanks for your speedy reply to my query Bron!
  
  As per your additional posts, which read:
  
  "we would expect fresh inflows if the situation in Europe continues to deteriorate, or if a new phase of quantitative easing poses fresh uncertainty for the value of the USD."
  
  Does this suggest that, if there was ever be a genuine recovery (not one of those dead cat bouncing hypes), gold could retreat and stay put at three digits, until history repeats its mistakes again?
  
  At the moment, it keeps going up and down and up again, it's very uncertain if not annoying.

• January 11 2012

  Bron Suchecki says:

  SD - if we did have a genuine recovery then I would expect gold to drop to some fair margin above mine production cost, which could be sub $1000 at the moment.
  
  
  
  We are seeing this volatility in gold and many other assets because of a lack of confidence and divergence in views on where the economy is headed. There are still plently of non-believers (if you will) who are willing to short any strong run ups in precious metal prices.