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ROSS NORMAN : GOLD - Blood In the Streets ?

For those of you who are contrarians you will have heard the quip by Baron Rothschild that the time to buy is when there is "blood in the streets" and by extension, the time to sell is at the point of maximum euphoria - "this time it is different" are the kind of words that should make you bridle. 

Anyway, gold has not performed as many would have wished and our sense is that there is considerable frustration with the relative price inactivity.

What prompted me to write is that we are starting to see really good physical selling at these record 18 month gold lows, when one might ordinarily expect bargain hunting to support the market. This is to say that perhaps we are nearing maximum despondency with gold after all. The selling suggests to me that gold has gone 'price inelastic' and things have changed profoundly - for now at least. 

The good news for gold bulls is that the weaker hands in the ETFs have sold out, the speculative long overhang on CME has all but disappeared and we have absorbed about 700 tonnes of leveraged selling (and we are now at levels not seen since early 2016), while the demand for physical reported by the Mints around the world are at generational lows. Indian demand is patchy and Chinese demand only adequate. I might add that the term "buy gold" on Google Trends has just slipped to a decade low. Further, gold's Relative Strength Indicator on the charts has slipped to below 24 confirming its oversold status. Not exactly blood in the streets yet - but for businesses in our space, it is certainly tough. 

In short, the rampant US dollar, equity market strength, further rates rises and new found optimism for the economy, especially in the US - are what have done for gold. And those doomsayers who have predicted armageddon for the last 10 years have some deep explaining to do ... 

What are we saying here ... if you are a contrarian then maybe its time to pay attention. The path of least resistance is still lower for gold in the short term but the onus is shifting from the bulls to the bears to make the case for these price levels. 

My hunch is that the lower gold prices and indeed volatility is reminiscent of the mid 1990's - which prompted a wave of innovation and resourcefulness, leading at a 16% year on year increase in 2000, well before any of us we had heard of Mortgage Backed Securities. That needed a few brave souls and some ambition at a few key institutions. My goodness we could do with that sort of character now. 

Ross Norman

CEO Sharps Pixley, London

18 Jul 2018 | Categories: Gold

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