This is it! This is the season. There is reason. If Gold is going to rally, this is the perfect storm. Threats going back and forth from North Korea and the US are fuel for a Gold run. Seasonally, we look for the Christmas Gold run to begin. If the market can break thru and hold levels above $1300.00, we are on our way. According to the World Gold Council the Q2 Gold demand was decreased 10 % from 2016 at 953.4 tons. Central Bank net purchases were also lower than the previous year at 176.7 tons. The bar and coin investment sector was increased. By the end of Q2 (June) the Gold backed ETF'swere 2.313 tons, that is $92.4billion.
Gold is one of the very credible products that will have a tendency to bring both rational and emotional security. The European Central Bank is continuing its stimulus. The US Dollar has drifting lower perhaps due to the anticipated tax cuts that were part of President Trump's election mantra having difficulty coming to fruition. The Stock Index Futures have been trading at highs that perhaps the valuations cannot support. Typically, we look for a correction in the next few months, thus again supporting the potential uptrend continuation of the Gold Market. Technology may further support the rise of metals as more Gold products become accessible online. Such as Goldmoney which handles $1.9 billion dollars in custodial assets. Instead of being backed by currencies they are backed by Gold and operate like a bank account.
While Gold itself may have enduring qualities, Investors may want to review their investment choices by:
- How are they regulated?
- Capital position.
Courtesy of the World Gold Council.
The US Dollar and Gold usually have that inverse relationship we've grown to look for! Yet both have been pressured in a risk-on environment. The thing about the Gold is that it is an emotional market that may move quicker and with more momentum than most when any of the factors that support it may trigger. One must ask though, if stock products were so wonderful, then why do the central banks hold Gold reserves. We must remember the true nature of Gold as a position trade of a safe-haven product. When the global condition may be unstable in any way, the investment world flocks to Gold. It is unusual for the Gold to be up when the Stock Indexes are also up. Something has to give! The Stock Indexes could be vulnerable to any pressures at these levels. Thus the opportunity for Gold to spike up! The problem being that any spike downs take out the stops and create momentum in a snowball effect. Traders may panic and reverse during such moves. We must recall the reason for holding Gold. As a safe-haven, it should be a portion allocated in proportion to the portfolio size. It must be able to sustain worst-case scenarios. The weaker US Dollar is also supportive to the Gold for the moment. Correlations may change over the years, so we cannot rely on the inverse relationship solely to propel the Gold higher.
According to the World Gold Council there are factors to support the Gold demand in 2017!
- Heightened political and geopolitical risks
- Currency depreciation
- Rising inflation expectations
- Inflated stock market valuations
- Long-term Asian growth
- Opening of new markets
The World Gold Council reminds us that 90 % of the physical demand for Gold comes from outside the US. The People's Bank of China reported reserves as of this January at 1842.6 tons. They also report Gold holdings for the fourth straight month at 59.24 million ounces. China's net Gold imports in March were up to 111.6 tons. Gold demand for 2016 was 4,309 tons according to the World Gold Council. The inflows into the Gold ETF's for 2016 accounted for 536 tons again according to the World Gold Council. At the end of February, ETF Gold holdings totaled a 2,246.1 tons up 90.6 tons from January. North America added about 44.1 tons while Europe added about 43.4 tons according to the World Gold Council. Asia had outflows of about 0.3 tons to 68.8 tons. Russia has conveyed a desire to transact Gold business with the BRICS nations.
As of the end of the first quarter, Gold-backed ETF's were around 2.277.5 tons. In Europe, the Gold ETF's had inflows of 109.1 tons for the first quarter according to the World Gold Council. Gold bar investments mostly came from China up 9 % to about 100 tons. The Central Bank demand for Gold waned with only 76.3 tons added to reserves. The Perth Mint reported Gold coin and bar sales in May were about 29,679 ounces. North American holdings increased 25.4 tons. The SPDR Gold Shares rose 21.0 tons to 853.4 tons. iShares Gold Trust increased by 4.5 tons to 204.4 tons according to the World Gold Council. US Gold exports as of January thru February increased to 101 metric tons. Hong Kong, China and India received 61.8 tons of the total. According to the World Gold Council, India's demand for Gold jewelry was up 16 % in the first quarter. India and China imported 98.3 metric tons in April. Projections are that China may purchase 1,000 metric tons in 2017. The global environment lends itself to uncertainty which is the fuel for the Gold. The rate hike is the one pause that may suppress the Gold from moving substantially.
Russia has been buying Gold and according to the Russian Central Bank may have 1,614.27 tons accumulated at this point. Asian economies may gain in wealth and they are notorious for purchasing Gold. It is projected that Asia may account for about 60% of the global growth in 2017. They have introduced their Gold Accumulation Plans at the Shanghai Gold Exchange thus encouraging holdings by consumers according to the World Gold Council. Japan has also increased their Gold holdings in recent years. Should the US Dollar become less of a premier currency since the Chinese have gained the Special Drawing Rights with the International Monetary Fund, then the US currency may be questioned where it is currently the preferred world currency. That is where Gold comes in! The People's Bank of China had gotten approval for their Special Drawing Rights (SDRs) from the World Bank allowing them to issue bonds drawn in Chinese Renminbe (RMB). As of October 1st, they include the Yuan. They have been known to buy Gold in recent years to accumulate backing for this event that they have waited for. The Chinese backed ETF's for Gold increased to $1 billion in US Dollars from $215 million again in the first half of this year. The thing about China is that they like to buy low, thus we see the pauses in the uptrends at specific levels where they may take profits. The dips are where they prefer to buy. The International Monetary Fund's special drawing rights is a feather in the cap for the Chinese currency. China as of June of 2015 had 1,658 tons worth possibly around $70.5 billion. They also keep their mining interest on a separate ledger thus holding more than reported. The Shanghai Exchange has had a sharp uptick in activity according to the World Gold Council to 346 tons compared to the normal 100 tons. China's stored Gold as of August 2016 was about 1800 + tons. The Shanghai Exchange (SGE) was selected by the Dubai Gold Exchange for the Shanghai Fixings as opposed to the London Fixings. The UK Royal Mint reported Gold sales up 20 % this first quarter.
The SPDR Gold Trust has conformed to the rules of the Sharia Law thus certified by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). Sharia Gold Standard has been approved by the World Gold Council in conjunction with other entities. Expectations for increased Gold sales may propel the Gold products higher. Currently there are few Sharia Law compliant products for Muslim investors. Once the guidelines have been met, the products available may increase thus allowing more allocations in Gold products. The Islamic Finance Stability Board expects growth to be around $6.5 trillion by 2020 with just a 1 % projection toward Gold allocations would be about 1,700 tons of Gold according to the World Gold Council. In Dubai, a new currency, the OneGram (OGC) is backed by one gram of Gold and may be used for digital payments. This may take off and offer more demand on Gold!
German investors added 76.8 tons of Gold thru ETF's, bars and coins according to the World Gold Council. According to the World Gold Council, every central bank reserve manager follows the mantra of: safety, liquidity and return. The financial universal market for Gold is thought by the World Gold Council to equate to approximately $3 trillion US. If the central banks continue to purchase Gold as insurance if you will for their country's reserves, then the investors themselves may continue to seek the Gold as a hedge for their portfolios. The Fed potential hikes and the strong US Dollar may pressure the Gold, but nothing can take away the safe-haven feature of the metal.
The main sentiment pushing the Gold prices is protection as a hedge against inflation. The US has been going thru a low inflationary period that is expected to turn into a high inflationary period with the new leadership. According to former Fed Chair Alan Greenspan, "Gold is not for short-term gain, but for long-term protection". Dr. Greenspan believes that there may be a risk of stagflation globally stemming from stagnant economic growth paired with rising inflation according to his commentary in a report from the World Gold Council.
(QST 8/11/2017 6:15 PM CST)
The safe-haven properties of the Gold are perfect for those times of uncertainty and/or conflict in the world or a time of easing! The Gold (December) contract is in a bullish mode if it stays above $1258.60. $1293.40 may be the comfort level or point of control. The range may be $1275.00 to possibly $1325.00 for the moment. If $1275.00 holds, it may be viewed as a potential support. $1307.00 is key to see if it may break thru the level toward the next strategic level of $1253.00. Any poor data, disappointment in the current administration, conflict or dovish Fed may boost the price of Gold. The unmet inflation target may also create that doubt in the US economy.
Leslie Burton of https://www.danielstrading.com/about-us/futures-brokers/leslie-burton
Take a close look and feel free to call in and talk to me in greater detail. It would be my pleasure. Good trading! Call me at (877) 224-1952 or email me at firstname.lastname@example.org
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