The Phaserl


Market Report: Up, up and away!

by Alasdair Macleod, Gold Money:

Gold has had a good week, breaking out from a consolidation pattern, and heading into new high ground for this year.

Silver, which has been left behind, appears to be merely pulled along in gold’s wake. As of early this morning UK time, the gold price is at $1,261, up 19% on the year, while silver is a little better this morning relative to its recent underperformance at $15.30, so is up only 10.5% on the year. Silver’s underperformance is a mystery to many, probably explained by the big money shifting into gold having been dangerously underweight, while the silver price is still reflecting moderating industrial demand. The result is the gold/silver ratio is now over 82 times.

Whoever is buying gold is probably less of an important issue than the simple fact that prices rise when there are more buyers and sellers. We started from a base of maximum bearishness, with traders and investors in western financial markets owning almost no gold. On Comex, traders were actually net short last December, a hitherto unprecedented situation. It is from these extremes that gold and gold-related investments, such as the mining companies, have soared. Gold is the best performing asset measured over the first nine weeks of 2016, and portfolio exposure is close to zero.

So the strength of gold is taking everyone by surprise. The common view of analysts in the investment houses appears to be there is no need yet to review their price targets, which are variously between $950 and $1300 for the year end. From being outright deniers of the investment merits of gold, many of them have moved to defend their position by saying it is based on their economist’s economic forecasts. Read this as code for “it’s not my fault I’m getting it wrong, I’m just reflecting the house view”.

The financial establishment has missed the boat, and is probably only a marginally reluctant buyer on balance. But what trader can look at gold’s performance, shown in the next chart, and keep short positions running?

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