The 3rd annual Dubai Precious Metals Conference came to a gloomy conclusion yesterday with participants voting for very little or no advance in the gold price this year after a lengthy panel debate between four experts, three of whom saw gold prices falling further before any possibility of an increase.
Even Ross Norman, ebullient CEO of Sharps Pixley and somebody with a very good record for forecasting, could not put gold above $1,350 an ounce by the end of the year and silver a few dollars higher. And yet there were plenty of reasons lurking in the shadows of the conference that might well bring a far better outlook. Gold prices, after all, are not actually noted for being flat and boring.
There was a panel of gold experts from India who explained how the tax hike last year halved the official imports on bullion into what was formerly the world’s largest gold market. Commodities gurus like Jim Rogers cite this as the main reason for last year’s price fall.
It was amplified by a switch by hedge fund investors and other big ETF holders out of gold and into stocks. That helped to spike the US stock market. Some 880 tonnes of gold were sold by the ETFs that brought the gold price down sharply. However, are we not about to see a reversal of these two huge problems for gold?
The Dubai conference heard how a new government was about to be elected in India in May that would probably scrap or ammend the gold tax which has done its job in cutting the trade deficit but encouraged smuggling and tax avoidance. Bringing back this lost source of buyers as soon as this autumn is not only possible but in the judgment of these experts very likely.
Now what about the giants of Wall Street? They were wrong footed on gold in January when the stock market dropped and gold prices rebounded sharply. This month has started with a three-day fire sale of stocks and gold and silver prices have gone in the opposite direction. All the 2014 gains in the stock market have been erased, precious metals are up. Bond yields are falling, easing fears that higher interest rates are going to make gold an expensive hold.
And if the ETFs want to buy their gold back now where has it gone? The conference heard that China bought most of it, and it is a one-way journey. None of the gold experts could recall ever seeing a Chinese bar sold in global markets. They buy and hold. So if they won’t sell the gold back it will be in short supply and what does that mean for the price?
What goes down can also go in the reverse direction. Forecasters who work in straight lines not only lack imagination, they are frequently wrong. Ross Norman pointed out that the difference between his analysis was that he looked forward more than a few days or weeks like the traders on the panel yesterday, though even their short-term forecast could also be horrendously wrong if the stock market sell-off gathers speed.
Looking at the charts tells you what has happened behind you. That is undeniable. But as a guide to the future they are often 50:50, a toss of the coin. Better perhaps to look at events coming up and their probability and what that means for the gold price. Get a better grasp on events and that might also help your trading.
If the 3rd annual Dubai Precious Metals Conference expressed the consensus view yesterday then we should also remember that the consensus is often wrong, especially at key turning moments in markets. New York gold fund giant John Hathaway was a lonely voice in expressing his confidence that the gold price would soon resume its upward trajectory.
But the evidence as to why that might happen was right under everybody’s nose. They just refused to see it!