Comex Gold (otherwise known to traders and investors with the futures symbol simply as GC), has been finding resistance in the 1300 price area ever since the YTD highs made in April. This article analyzes the possibility that Gold has finally found a short-term bottom and is ready to launch. To present a case, I am using simple technical analysis in the form of Fibonacci and putting trend lines and other such methods aside as trend lines are meant to break. Often analysts opine on why the price of an instrument moved up or down and it is usually after the fact that you will see a lot predictions. My goal here is to present a case that allows you to catch the move in the price of Gold as it originates. It is true that the cost of money always plays an important role in the price of gold. With interest rates projected rise from Fed action, Gold naturally becomes less desirable as other instruments begin to shine brighter for hedging. They say that since gold is a non-yielding asset, smart investors want no part of it. Moreover, the pricing of gold in the form of Comex Gold has been considered suspect by investors for a long period of time. While Gold stock piles fall, registered ounces of gold ready to meet the demands for physical delivery of contractual positions remain significantly higher than they were at the beginning of the gold bull market back in the day. While managed money is net long Gold, producers and swap dealers show a negative open interest as of June 2018. People often ask what gives gold bars or money their value. In truth it is humans that perceive this value, and this come from supply and trust. Assets of limited supply are deemed more valuable, and have often been deemed a good form of money. So how dogold bullionand cash compare when it comes to limitations on their supply?
As Fed Governor Ben Bernanke said in his 2002 speech, central banks have the modern day version of a printing press that can create unlimited amounts of dollars, euros and pounds. With central bankers having the ability to magic money out of thin air, and typically trying to solve financial crises by money printing, the value of cash is difficult to guarantee.
In contrast golds value is not set by a central authority. It is this marked difference in supply, and therefore rarity, that makes gold bullion bars so valuable in todays world of unprecedented central bank intervention. The supply of gold is strictly limited by nature, is not subject to ideology or politics. In fact, the supply of gold is more steady and limited compared to other monetary alternatives.
With all the gold ever mined fitting into a cube only slightly larger than 20 cubic meters, gold bullion is very different to printed dollars, euros, pounds, yen or whatever currency you use to analyze. It is the marked contrasts in supply that makesgold investmentsa superior store of value, and perhaps also a better savings mechanism. Gold is very unlike oil where the petro-dollar still rules. Gold is measured in currencies preferred by the central bankers and that differs from the region where it is actually being traded. As a gold trader trading GC in swing or intraday, do I need to worry about things like how much of the open interest is actually backed by physical gold? There are various cover ratios that measure this but it is an important thing to keep in mind while trading hard earned dollars in exchange for a continuous Gold contract. ETFs are no way of measuring gold. They have nuances that will boggle the human mind when it comes to the computation of settlement price. Whilst many COMEX participants have been withdrawing gold from warehouses, one member has taken it to other level recent years. Gold analysts have been asking why this is and why this exchange members behavior is so vastly different to others. JP Morgan has been switching to hoarding Silver in favor of Gold and the amount of physical gold unloaded during the 2012-2013 period was stunning to say the least. Whilst there is little doubt that the amount of stock held in COMEX Warehouses has seen somewhat of a decline, this trend is in line with others exhibiting themselves in COMEX market data. Whilst numbers of Open Interest have fallen slightly, market participation is not collapsing yet. At the same time, levels of Open Interest are not falling as rapidly as gold stocks, meaning this paper gold is becoming less tangibly backed by bullion. The cover ratio does not, as yet, appear to be at unprecedented low levels even if we should keep a close eye on it.
As a technical trader of Gold, there is something relevant about the recent price levels of GC. To explain this, Ive used the low price of Gold from December 2016 (1124.3) and measured it to the high made earlier this year on April 10
th (1369.4). This past Friday, we tagged exactly to the 50% retracement of that range which was at 1246.9 and Gold bounced, if not handsomely, at least in technical recognition of that level.See the chart below of that measurement
Chart analysis of Gold Dec16~June18.
Here is Friday's Chart of Gold
The price action from this past Friday and the bounce of that level leads me to believe that we are likely headed higher for Gold in the near term and I have a price target in the 1270 area over the next couple of weeks.
