Gold: Vulnerable . . . but Oversold
Jeffrey Nichols, Senior Economic Advisor to Rosland Capital, had the following comments on the current gold market situation and outlook:
With many traders on both sides of the Atlantic on holiday, gold has fallen victim to the dog days of summer, falling through the technically and psychologically important $1,300 price level, driven lower by merely a ripple of spec selling magnified by thin volume in Western markets.
This week’s gold-price action has been a stern reminder of gold’s continuing vulnerability. Just as the price seemed poised to move higher, a hard and fast correction brought the price swiftly back down through $1,300 an ounce before fresh support appeared just under the $1,285 level.
Gold may be vulnerable but, on a more positive note, it is also over-sold and sentiment is overly negative.
It appears as if gold prices are still in a lengthy “bottoming phase” and may have more work – technically speaking – in the $1,180 to $1,350 range before breaking through overhead resistance and moving substantially higher.
The short-term technical picture may seem bleak . . . but the long-term fundamentals remain bullish. Once again, the big sellers have been a small number of major bullion dealers and institutional traders driven by computer models and momentum indicators.
Making it difficult for the price to achieve “escape velocity,” many of the physical buyers who have been accumulating gold over the past few years (private investors and central bank reserve managers alike) have tapered their rates of gold accumulation or simply postponed purchases, waiting for signs that the gold price has hit bottom before stepping up to the plate to resume their “normal” buying patterns.
Importantly, as we have pointed out repeatedly in recent commentaries, the risks of a major lasting downward correction are significantly less than the possibility of a quick bolt into higher territory and the re-establishment of the long-term bullish trend. To my mind, the question is not “if” but “when.”
We sense that the U.S. economy is weaker than generally believed – and certainly not strong enough to bring real improvement to the jobs market and real relief to the unemployed, under-employed, and under paid. As this view gains credence, expectations of early tapering should diminish, putting gold on a firmer footing.
Those who see significant improvement in labor market conditions are looking at the economy through rose-colored glasses. As July’s employment data point out, despite the decline in the headline unemployment rate, the overall labor market remains bleak.
This, along with other recent indicators — including the recently reported inflation data well below Fed targets — suggest that gold and other financial markets will experience a shift in expectations, with a growing number of participants anticipating a later start-date for the Fed to begin cutting back its program of quantitative easing.
About Rosland Capital
Rosland Capital LLC is a leading precious metal asset firm based in Santa Monica, California that buys, sells, and trades all the popular forms of gold, silver, platinum, palladium and other precious metals. Founded in 2008, Rosland Capital strives to educate the public on the benefits of investing in gold bullion, numismatic gold coins, silver coins, platinum, palladium, and other precious metals. Rosland also helps people who wish to protect their wealth by including a gold or precious metal-backed IRA in their asset portfolio. Click here for more information.
About Jeffrey Nichols
Jeffrey Nichols, Managing Director of American Precious Metals Advisors and Senior Economic Advisor to Rosland Capital, has been a leading precious metals economist for over 25 years. His clients have included central banks, mining companies, national mints, investment funds, trading firms, jewelry manufacturers and others with an interest in precious metals markets.