Gold received another body blow in mid-Asian trading hours which saw spot prices dip briefly below $1,700 before finding support at the technically important $1,705 level – the low seen on Nov. 15; a failure of this level after the US opening exposes us to a decline to the next level of technical support at $1,672.
So what the heck is going on here? Isn't the dollar weak? Aren't we nearing the edge of the fabled fiscal cliff? Doesn't the US reach its debt ceiling in eight weeks time? Isn't this traditionally the season for high physical demand?
The newswires are awash with forecasts suggesting record prices next year but, like the gold price today, it lacks a certain conviction. Witness today's move ... a classic dead cat bounce (dead cats don't bounce). The underlying sentiment in gold – at the moment - totally lacks confidence.
Last Wednesday's sell-off (24 tonnes on the CME opening) was at a time of maximum market liquidity while today’s was the reverse – during Tokyo lunch – no liquidity. But both tested gold and the result was the same: modest buying on the dips but broadly speaking lackluster. The squeeze on gold has been a successful ruse by certain players – but more importantly it has exposed gold.
If you sense a certain frustration from our side – well yes, it is there. Gold doesn't have a God-given right to a 17%+ year-on-year gain in prices. It has been “earned” by external economic events and by the prescience of a few in creating the gold ETF – eight years ago. Since then, the market has ceased to innovate.
In short, I would question how effective the market itself has been in terms of making it universally available and understood by ordinary investors. It is a very small lifeboat in a big crisis, serving a very narrow demographic.
For example, we scarcely ever receive a call from a new buyer who does not start buy apologizing for not really understanding gold – what it is, where you keep it, where you sell it etc. Secondly, it remains too difficult to purchase gold in most rich nations (have you ever seen a gold coin or bar for sale in London ?) who arguably have the greatest motivation for buying gold as a wealth preserver. Where are the conduits between the refineries and the mass markets for physical bars – with education in the product to boot ? This sounds like an open invitation to compete with Sharps Pixley and in many ways it is. We would all be served better.
If you are looking for a key reason why gold has lacked momentum in the last 12 months, it is because we have manifestly failed to address the immediate needs of the time and that is to deliver a large and liquid physical market – to complement the paper one – that punters can understand and buy/sell in readily.
With epic events taking place on the economic stage, gold is looking like the dog that didn't bark ... or perhaps that should be the cat that didn't meeoow. Forgive the rant.