The gold-price of the dollar just formed a bearish inverted hammer candlestick pattern.
More on that later.
The GFMS Report.
But first, I’ve noticed a lot of articles citing the latest GFMS report and claiming that there is a huge “oversupply” of gold on the market and that this surplus is getting bigger. If you’ve read Gold: An Intro to Supply And Demand Analysis, Part I, you’ve probably already realized that this is nonsense. But just to make things clear, here is the data that’s supposedly coming from the GFMS report.
Keep in mind that I do not have a subscription to GFMS, so I’m getting this info second hand.
GOLD SUPPLY/DEMAND (T)* 2015 2016 Pct change Mine production 3,216 3,168 -1.5 Scrap 1,165 1,280 9.9 Net hedging supply 21 78 271.4 TOTAL SUPPLY 4,404 4,525 2.7 Jewellery fabrication 2,271 1,775 -21.8 Industrial fabrication 362 336 -7.2 Official sector demand 437 252 -42.3 Retail investment 1,115 986 -11.6 Physical demand 4,184 3,349 -20.0 Surplus/deficit 220 1,176 434.5 ETF inventory build -125 523 n/a Exchange inventory build -49 86 n/a Net balance 392 569 45.2 *Source: GFMS Gold Survey 2016 Q4 Update & Outlook
I got this data from an article located here: http://bit.ly/2kIJ7c4
Now, this is how the data should look:
Mining output (including net producer hedging): 3,237
Non-monetary demand (jewelry plus industrial minus scrap): 1,468
Central banks: 437
Retail Bullion Bars and Coins: 1,115
ETF inflows/outflows: -125
Exchange inventory build: -49
Institutional Investment/Bullion Bank Hoarding (called “balance” by GFMS): 392
Total Monetary Demand: 1,770
Monetary Gold Demand Deficit (mining output minus monetary demand): –1,467 (1 tonne unaccounted for)
Mining output: 3,246
Non-monetary demand: 831
Central banks: 252 (185 less than last year)
Retail Bullion Bars and Coins: 986 (129 less than last year)
ETF inflows/outflow: 523 (648 more than last year)
Exchange inventory build: 86 (135 more than last year)
Institutional Investment/Bullion Bank Hoarding: 569 (177 more than last year)
Total Monetary Demand: 2,416 (646 more than last year)
Monetary Demand Deficit: -830 (1 tonne unaccounted for) (638 less of a deficit than last year).
According to this data from GFMS, people who accumulate small bullion bars and coins did so at a slower rate in 2016 vs. 2015, buying 129 tonnes less gold in the form of these products. Central banks also slowed their accumulation by 185 tonnes. This was a total of 314 tonnes.
But this was almost made up for by a speeding up of inventory increases at the exchanges (135 tonnes more than last year) and an increase in the pace of inventory build by bullion banks and institutional investors (177 more than last year). Together, these two groups of buyers increased their accumulation by 312 tonnes over last year, absorbing all but two tonnes of the extra gold not bought by retail bar and coin buyers and central banks.
In addition to this, the mining companies produced nine tonnes more in gold than they did last year. This is a total of 11 tonnes extra gold that needed to be absorbed by the market.
However, this number was dwarfed by the massive growth in ETF inventory build, which went from -125 tonnes in 2015 to 523 tonnes in 2016. This is a swing from negative to positive of 648 tonnes.
This means that 648 extra tonnes of gold were taken off the market by ETFs and hoarded in 2016. After taking into account the extra 11 tonnes mined or not demanded by other customers, this still results in a net decrease in the Monetary Gold Demand Deficit of 638 tonnes.
So, if we interpret the GFMS data correctly, the “surplus” or “oversupply” of gold went down, not up, last year. It’s no wonder then that the price of gold went up as well.
For more info on how to interpret this kind of data, read my earlier post on the subject.
With that out of the way, let’s look at the charts for the week.
U.S. Dollar, Stocks, Bonds, and Miners.
The dollar has stopped falling and has pulled back to the 21-day EMA. MACD looks like it may be about to crossover. But it hasn’t happened yet. RSI is now sitting right on 50. This could indicate that momentum is going to reverse and the dollar is going to continue up or it could just be a pullback.
I personally do not want to go long the dollar (short gold) right now. I’m planning on waiting until RSI goes back above 50, MACD crosses over, and the 21 and 10-day EMAs cross over.
However, I have exited my leveraged long position in gold right now. And I’m happy I did…except that there is one problem.
Looking at the inverted gold chart so that we can see the candlesticks, we can see an inverted hammer on the price of the dollar. This is a bearish sign. It indicates that dollar-buyers (gold-sellers) got stuck at the 21 EMA and couldn’t push it up any higher.
Also, here’s another vantage point to look at it from.
This is the inverted gold chart from the past year, with the 100 and 200-day EMAs instead of the 10 and 21. It shows that the dollar got drastically overbought in late December and then fell until it hit the 100-day EMA, at which point it bounced. It may be that this is as high as the bounce is going to get…in which case it is likely to fall at least until it reaches the 100-day EMA again.
If the candle on Monday closes below its open and is at least the same size as Thursdays, I’m probably going to make a quick short trade against the dollar. Otherwise, I’m staying out of this…as it’s looking like it could go either way.
Keep in mind that there are a lot of market-moving events coming up over the next week as well. The Chinese holiday means that many traders are on vacation, providing opportunities for hedge funds and other players with deep pockets to have a disproportionate effect on the market due to the lack of liquidity. In addition, the FOMC statement is on Wednesday and NFP is on Friday. So this is likely to be a very volatile week. Be careful.
The stock market appears to be recovering. RSI is now above 50 and MACD might be crossing over. In addition, the price is now above the 10 and 21 EMAs. But the EMAs have not crossed over. So caution is warranted. But it’s looking like stocks may be a good buy soon.
Bonds appear to have hit the floor of their range early this past week. I’ve been watching this for a long time and waiting for it. Despite the lack of momentum, I’m tempted to buy here. It’s probably going to go all the way up to 0.1040 oz. before reversing again.
It’s usually the case that when the dollar gets stronger, gold mining companies fall in value. However, that does not seem to be happening right now. The gold miners are in a very healthy uptrend. And the price just keeps bouncing off the 10-day EMA like clockwork. Meanwhile, RSI is at 60 and MACD is above zero and not crossing over. This seems too good to be true. But if the dollar closes lower tomorrow, I will seriously consider buying this.
Have a good week trading. And please comment below if you find this information useful.