Further Declines in Gold
By Przemyslaw Radomski, CFA
These past few weeks it seems like
paper gold is out and physical gold is in.
The fall in the price of gold has triggered a new run on
physical gold that shows no sign of abating. Record amounts of money have
exited ‘paper,’ i.e.
ETFs, and headed straight to the bank or the mint to be exchanged for coins
bullion bars, that is if one can get them. The strength of physical retail
buying has taken dealers and mints around the world by surprise, leaving them
scrambling to keep up with demand. The sudden surge is evidence of pent-up
demand, particularly from China and India.
There seems to be a growing disconnect between paper and real gold. It’s very
likely that the paper sellers didn’t foresee the rush to physical gold. Could it
be the case that the physical market is lagging behind and will eventually catch
up and sell off too? Let’s look at some of the evidence.
Physical Gold, an investment company, said there were waiting lists of three
weeks for some coins, and four to six weeks for gold bars whereas previously all
would have been available within a few days.
The US mint had to suspend sales of certain coins as buying increased. It sold
an estimated 210,000 ounces of gold coins in April - almost three and half times
more than the 62,000 it sold in March.
The Perth Mint worked overtime over the weekend to manufacture enough stock to
meet orders, which are at levels last seen in the 2008 financial crisis
(confirmation of the 2008 – now analogy).
There are reports that both Istanbul and Dubai are out of investment bars,
according to Bloomberg, with wholesale and bulk buyers paying a premium of
between $6 and $9 an ounce for kilo bars.
U.S. coin shop said that sales of Krugerrand have increased 468 per cent last
week as investors rush to get the precious metal at what they see as a bargain
The Financial Times
wrote that Asia is witnessing one of the strongest waves of physical gold buying
in thirty years. ‘Buyers Scour Asia for Physical Gold’,
proclaimed the headline.
Swiss refiners have run out of kilo gold bars (cost around $48,000). There is
now a one-month wait for delivery.
Physical stocks of gold held at CME Group's Comex warehouses in New York have
dropped to a near-five year low in a further sign that gold's price crash
unleashed a frenzy of demand, according to a Reuter’s report.
Well…you get the point. The gold bugs are coming out of the woodwork and they
want the kind of gold they can bite between their teeth. World over, private
investors have taken advantage of the dip to pounce on physical gold. Keep in
mind that there is some effort that goes into buying physical gold. It’s not
like placing an order online for the purchase of ETF shares. Most physical gold
buyers are not in it for the
short term -- they plan to hold on.
Sunshine Profits we have always advocated physical gold over the paper kind for
long-term investments. If your investment time horizon is more than a year, you
want to purchase the physical metal, not somebody's promise to pay you some
money down the line based on the price of the metal. For short-term trades,
however, ETF shares are ok. On a side, note, if you didn’t see it previously, we
have two sections that should help you choose the best investment and
How to Buy Gold and
Gold / Silver ETF Ranking.
see what is in store for the price of gold in the following weeks, let’s turn to
the chart section - we will start with the yellow metal’s medium-term chart
(charts courtesy by
closer look shows us that gold has actually corrected to its previous support
level (declining, dashed line) and verified this as resistance. At this time, it
could just be a pause within a rally, but generally the main short-term trend
here is down, although we have had a correction of about one half of gold’s
recent decline. It seems now that the move to the downside will continue and the
RSI suggests this is clearly possible. It is no longer oversold and is
pretty much in mid-range levels. Moreover, in last week’s essay (Gold
Price in May 2013) we discussed the importance of long-term
cycles on the gold market – the cycle suggests further declines and formation of
the final bottom in the next several weeks.
Let us move on to the chart of the yellow metal from the non-USD perspective.
Here, gold prices are not at the 50% retracement level but rather lower. Other
than that, this chart is similar to the previous gold charts and it seems that
the short-term trend here will continue to the downside.
Finally, let’s have a look at the Dow to gold ratio chart.
This chart suggests that we will see lower gold prices. The reason for this is
that the declining resistance line for the ratio has not been reached.
Summing up, the
strength in the physical market suggests that the bull market is intact and that
what we’re seeing now is just a major correction within the secular bull market.
However, it seems that declines in gold prices are not over yet. The bottom
appears likely to be a few weeks away and this gives the market plenty of time
to move lower. Gold corrected 50% of its decline and could now move lower once
again. The Dow to gold ratio indicates a strong resistance line has not yet been
reached. This supports the premise that gold’s final bottom is not yet in.
To make sure that you
are notified once the new features are implemented, and get immediate access to
our free thoughts on the market, including information not available publicly,
we urge you to sign up for our free
gold newsletter. Sign up today and you'll also get free, 7-day access to
the Premium Sections on our website, including valuable tools and charts
dedicated to serious Precious Metals Investors and Traders along with our 14
best gold investment practices. It's free and you may unsubscribe at any time.
Thank you for reading.
Have a great and profitable week!
Gold & Silver Investment &
Trading Website - SunshineProfits.com
* * * * *
About Sunshine Profits
Sunshine Profits enables anyone
to forecast market changes with a level of accuracy that was once only available
to closed-door institutions. It provides free trial access to its best
investment tools (including lists of
best gold stocks and
best silver stocks), proprietary
gold & silver indicators,
buy & sell signals, weekly newsletter, and more.
Seeing is believing.
All essays, research and information found above represent
analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits'
associates only. As such, it may prove wrong and be a subject to change without
notice. Opinions and analyses were based on data available to authors of
respective essays at the time of writing. Although the information provided
above is based on careful research and sources that are believed to be accurate,
Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or
thoroughness of the data or information reported. The opinions published above
are neither an offer nor a recommendation to purchase or sell any securities.
Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw
Radomski's, CFA reports you fully agree that he will not be held responsible or
liable for any decisions you make regarding any information provided in these
reports. Investing, trading and speculation in any financial markets may involve
high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and
affiliates as well as members of their families may have a short or long
position in any securities, including those mentioned in any of the reports or
essays, and may make additional purchases and/or sales of those securities