I haven’t been able to update this blog as much as I would like due to my freelance writing business bringing in a lot of work lately. It’s a good problem to have. 🙂
But given what has recently happened, I wanted to take the time to post an update.
Here is the most recent chart for the U.S. Dollar.
U.S. Dollar Priced in Gold.
The dollar has been falling since December. But after hitting the 2011 uptrend line, it has reversed and gone back up.
If you don’t know where the 2011 uptrend line is, look at it here:
This line was tested in October 2012, June-July 2016, and now April 2017. Each time, the dollar has failed to break support.
I thought that maybe this would be the time when it would finally crash. But that did not happen.
So what gives?
More on that later.
First, here’s the S&P 500 priced in gold.
U.S. Stocks Priced in Gold.
Stocks hit resistance in December of 2016, crashed and then started to recover. When Trump got elected in November, they blew up and tried to go through this line of resistance again.
They finally hit it and then bounced off in December. They then made another run at it in March-April, but failed to make it even back up to the line. Now they appear to be trying once again to break through the 2 troy ounces/share mark.
If I was considering buying U.S. stocks, I would wait until this level is broken or until there is a big selloff.
Now here’s bonds.
U.S. Bonds/Treasuries Priced in Gold.
Looking back, bonds appear to have been trading in a range since the beginning of 2015.
There’s been a small upswing just recently. I expect this to continue.
If this range holds, there’s a lot of room for bonds to move up.
Why Is The Dollar Rising?
Now, the question is: why has the gold-value of the dollar suddenly reversed? Why did the 2011 uptrend line hold once again?
Or, to put it in a dollar-centric way, why is the price of gold declining?
The new Demand Trend’s Report from the World Gold Council was released on Thursday. If we comb through the data, we can get a pretty good idea why this is happening.
Here is the data for the fourth quarter of 2016 and the first quarter of 2017. Previous quarters were covered in this post.
Mining output: 785.9
Retail bar & coin demand: 367
ETF inflows/outflows: -193.1
Central bank purchases/sales: 114.4
Bullion bank/exchange hoarding: 42
Total Monetary Gold Demand: 330.3
Monetary Gold Demand Deficit: –455.6
Mining output: 749 (36.9 less than Q4 2016)
Retail bar & coin demand: 289.8 (77.2 less than Q4 2016)
ETF inflows/outflows: 109.1 (302.2 more than Q4 2016)
Central bank purchases/sales: 76.3 (38.1 less than Q4 2016)
Bullion bank/exchange hoarding: -2.6 (44 less than Q4 2016)
Total Monetary Gold Demand: 472.6 (142.3 more than Q4 2016)
Monetary Gold Demand Deficit: -276.4 (179.2 less than Q4 2016)
In Q1 2017, mining output fell by 36.9 tonnes. However, retail bar & coin demand also fell by 77.2 tonnes and central bank purchases fell by 38.1 tonnes.
Bullion banks & exchanges sold 2.6 tonnes of gold in the first quarter instead of buying 42 tonnes. This is a swing of -44.6 tonnes for bullion banks and exchanges.
Excluding ETFs, this brings the total fall in quarterly demand to -159.3 tonnes. After subtracting the 36.9 tonnes to account for the slowdown in mining output, this implies that we had an extra 122.4 tonnes hit the market.
However, all of this extra gold plus more was bought by exchange traded funds. ETFs bought 109.1 tonnes as compared to selling 193.1 tonnes the previous quarter. This is a total swing of 302.2 tonnes.
This caused the monetary gold demand deficit to contract by 179.2 tonnes. Therefore, the price rose.
However, almost all of the buying by ETFs this quarter were by European funds, not U.S.-based ones. European funds bought 92.1 tonnes out of the total 109.1. That’s most of the positive demand and almost one-third of the total 302.2 tonne swing from negative to positive.
The other two-thirds were mostly from the lack of selling of U.S. based ETFs.
So the question is: why were all of these European investors buying gold-backed ETF shares in Q1 2017?
One possible explanation is that they were buying Euro-denominated gold-backed ETFs in order to hedge against a possible Melenchon or La Pen win in the French Presidential race.
If so, this explains why the “price of gold” has suddenly stalled out right after it became clear that Macron is going to win the French Presidency.
If I am right about this, it means we could see a big rally in all fiat currencies over the next few weeks or months. The dollar could go all the way up to the 2005 downtrend line that currently sits at 0.87 mAU/dollar (0.00087 troy ounces/dollar). The Euro could rise even further.
So get ready to buy some cheap gold. 😉
I use GoldMoney to buy my gold at half a percent over spot.