-- Published: Thursday, 15 October 2015 | Print | Disqus
By Peter Cooper
The gold market is turning around right before our eyes and still hardly anybody seems to be paying much attention, while stocks markets wither on the vine and the US economic outlook weakens by the day. Gold prices were up more than two per cent on Wednesday and it will only take a couple more days of this type of performance to eliminate all the losses of 2015.
From that point the chances of a decent rally up to $1,300 and beyond are high. Any cyclical trader will see that the bottom in the gold price in early August is now confirmed and that the only way is up as everything else comes down, except perhaps for the moment bond prices.
Wall Street stock market bulls are now almost as scarce as goldbugs in early August. Sure the Fed’s decision not to raise interest rates stopped an immediate market crash. But it left a nasty aftertaste of a weakening economy that can’t stand tough medicine. Weakening economies do not keep profits on an uptrend, on the contrary slower profit growth is toxic for share prices.
Still you have to ask why investors would start to shift back into precious metals, so recently persona non grata on the street.
Basically it is down to an unwinding of Goldman Sach’s negative call on gold earlier this year. They said gold prices were on a one-way trip lower because interest rates were only going in one direction, and as gold does not pay investors any interest that made it a sell.
Well Goldman’s call turned out to be dead wrong. It becomes clearer and clearer from every economic data series, both US and global, that US interest rates are not going up, and the risk to the economy of doing so is increasing and not decreasing. In short, there was an opportunity to raise rates, perhaps, but it has gone. For good. Negative rates are more likely in the near future.
Therefore, it is gold that becomes the one-way bet for traders, not shorting precious metals. These guys are not sudden converts to the case for sound money in a world awash with paper and debt. They simply see a trading call that went wrong and have switched to the other side.
Given that momentum usually moves only in one direction the question then is how high will gold go and how fast? Will this be a like a brick on the end of an elastic band or a steady uptrend lasting a couple of years? Traders will not be waiting to find out.
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-- Published: Thursday, 15 October 2015 | E-Mail | Print | Source: GoldSeek.com