4 Absolutely Spectacular Gold Charts & Commentary

With oil surging and gold and silver rebounding, today top Citi analyst Tom Fitzpatrick sent King World News four incredible charts and commentary covering the gold market.  Fitzpatrick takes KWN readers through a fantastic look at the gold market as only he can, and KWN readers around the world will enjoy this extraordinary piece.

Here is Fitzpatrick’s piece along with 4 tremendous charts:  “(Below is an article covering gold from the) New York Times, 29 August 1976 (3 days after the corrective low had been posted in 1975-1976 before Gold started a 3 year rally into late 1979/early 1980):

 

“Two years ago gold bugs ran wild as the price of gold rose nearly six times.  But since cresting two years ago it has steadily declined, almost by half, putting the gold bugs in flight.  The most recent advisory from a leading Wall Street firm suggests that the price will continue to drift downward, and may ultimately settle 40% below current levels.
The rout says a lot about consumer confidence in the worldwide recovery.  The sharply reduced rates of inflation combined with resurgence of other, more economically productive investments, such as stocks, real estate, and bank savings have combined to eliminate gold‘s allure.
Although the American economy has reduced its rapid rate of recovery, it is still on a firm expansionary course.  The fear that dominated two years ago has largely vanished, replaced by a recovery that has turned the gold speculators’ dreams into a nightmare.”

The above note is probably a close representation of consensus market view at the moment.

We are biased to believe that the low in this correction may have been posted for Gold.  However it is early days and we need to see some more positive price action to support this view.

–  Crude has consolidated but still looks bullish overall

Between 1973 and 1974 the DJIA fell 45%.  As the Equity market then recovered Gold went into a corrective phase within 3 months that saw it fall 445 as the Equity market rallied.

This time around gold has in fact been much more resilient.

–  It did not peak until Sept 2011 (2 1⁄2 years after the Equity market bottomed out).

–  It has so far corrected 39% with an Equity market that has rallied 140% off the March 2009 low (DJIA).  In 1975-1976 it corrected 44% as the equity market rallied 76%.

“In 1976 the Gold correction ended in August and the Equity market began a deep correction in September (27% over 18 months).  During that period Gold rallied by about 78% and over the 1976-1980 period it multiplied in value by a factor of 8 from just over $100 to over $800.  The final part of that rally saw Gold rise from about $470 to $850 over about 4 weeks on the back of the USSR invasion of Afghanistan.  Even without that move it still multiplied by about 4.5 times in just over 3 years.

So what are we looking at to increase the likelihood of the low being in?

In addition, daily momentum is turning up from more oversold levels than those seen before the $270 bounce in 2012.  On a daily chart this is the most oversold we have Been since the turn higher in Gold in 2001.

It has become very stretched to the 55-and-200-day moving averages which now have a big gap between them.

An important thing to note is that Gold broke its support level the same week as the S&P broke above its 2007 high.  As long as the equity market stays resilient (As we saw in 1975-1976) it may be a drag on Gold’s ability to rally substantially.  In the 1980-2000 period when financial assets were aggressively rallying, Gold took a back seat.  We may need the market to be more concerned about the financial/economic backdrop before Gold can get any real traction again.

Source: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/7/3_4_Absolutely_Spectacular_Gold_Charts_%26_Commentary.html

Riot police clash with protesters at Centerra gold mine in Kyrgyzstan

Hundreds of protesters attempted to storm a Canadian gold mine office in Kyrgyzstan on Friday, clashing violently with riot police and prompting the Central Asian nation to declare a state of emergency. Dozens of people were wounded.

Riot police used stun grenades and rubber bullets to disperse the stone-throwing protesters, the Health Ministry said, adding that at least 55 people, including 13 police, were wounded in clashes. A police bus was set on fire.

About 2,000 protesters had descended upon the Kumtor mine office near the eastern village of Barskoon, furthering a protest that began earlier this week to demand that the mine be nationalized and provide more social benefits in the impoverished nation.

The mine, operated by Toronto-based Centerra Gold, is the largest foreign-owned gold mine in the former Soviet Union.

Protesters had blocked the road leading to the mine. On Thursday night, several hundred demonstrators, some on horseback, besieged a power transformer unit and cut off electricity to the mine for several hours.

Riot police moved in overnight, detaining about 80 protesters and restoring the power supply.

Kyrgyz President Almazbek Atambayev introduced a state of emergency in the area on Friday.

Centerra says the protests are illegal and that it’s working with the government and local authorities to resolve the situation.

A senior cabinet member visited the area Friday and tried to persuade the protesters to disperse, saying that further disruptions to the electric supply would have crippled the mine and cost significant economic losses.

“The government is asking you to have patience and wait until the autumn, when we will look at the issue,” Deputy Prime Minister Shamil Atakhanov told protesters.

Kumtor, which accounts for about 12 per cent of the economy of the ex-Soviet nation, has been at the centre of heated political debate between those seeking its nationalization and officials who believe that would deter much-needed foreign investment.

Kyrgyzstan, a country of 5 million people on China’s mountainous western border, hosts a U.S. air base used to support military operations in nearby Afghanistan.

The nation has seen the overthrow of two governments since gaining independence amid the 1991 collapse of the Soviet Union, the latest after bloody protests in 2010.

Source: http://www2.macleans.ca/2013/05/31/riot-police-clash-with-protesters-at-centerra-gold-mine-in-kyrgyzstan/

The geopolitics of gold

Western central banks have got themselves horribly wrong-footed as a result of not adjusting their anti-gold policies to allow for the realities of Asian gold demand. Though their dealings are shrouded in secrecy, there is compelling evidence that much – if not most – of Western central bank gold has been quietly sold over the last three decades.

More recently all members of the Shanghai Cooperation Organisation, a common security and trading bloc led by Russia and China and incorporating the bulk of Asia’s land mass, have been accumulating gold. Between current SCO and future members (India, Iran, Afghanistan, Mongolia, Belarus and Sri Lanka), with their citizens numbering over 3 billion people, they have together cornered the global market for physical supply, without even taking account of demand from the rest of South East Asia’s gold-hungry population.

The result is that gold markets are now failing to clear. The outcome is a choice: the West will either have to stop intervening and allow gold to find a level where physical and derivative markets interact properly with each other, or capital markets in the West will face a growing crisis likely to spill over into other markets. While these outcomes were always going to be a choice to be made at some time in the future, the disconnection between physical gold and derivatives has become so great that it is now an immediate concern.

At the government level it is a geopolitical clash of the titans. Russia and China are almost certainly aware of the lack of gold in Western central bank vaults: they are fully capable of thorough due-diligence in this respect. They have so far been careful not to disrupt capital markets because it has not been in their interests to do so; however, the current hiatus in gold markets is almost certain to modify their view.

Fundamental to all this is their attitude to Western currencies: the yen is now collapsing, the euro area is in deep trouble and the US economy is at very best stagnating. Until now, payment for Russian energy and Chinese goods in foreign currencies has been welcomed, because it has allowed the Russian and Chinese elites and middle classes to accumulate wealth. This balance of interests can only be maintained for so long as Russian and Chinese governments and their citizens can hedge foreign currency risks through an offsetting accumulation of foreign-owned gold.

This is no longer the case, because to all intents and purposes western capital markets are cleaned out of physical supplies, and the ability of the Western central banks to supress gold prices appears to be ending. And with the West’s financial system no longer able to deliver their most prized commodity, hitherto passive attitudes in Asia to Western currencies are likely to be reassessed.

The gold question has become central to east-west trade. The sensible approach for Western central banks is to defuse the problems arising by taking positive steps to ensure that gold markets operate properly. This is conceptually difficult, because the most likely result, a higher gold price, would risk undermining confidence in the major currencies and most probably damage the bullion banks in London.

Source: http://www.goldmoney.com/gold-research/alasdair-macleod/the-geopolitics-of-gold.html