Gold Prices Set To Climb In The New Year

After climbing the most in a week as a retreat in the dollar and equities revived demand for the yellow metal, the spot price of gold has weakened marginally this week.

The price of gold jumped more than 1% on Monday on a brief surge of late-day technical buying as it breached the $1,200-per-ounce level.

Interestingly, while softer oil prices have usually had a negative impact on gold prices, as it hurt gold's appeal as a hedge against oil-led inflation, the price of gold has remained firm even though the price of crude oil has slumped to fresh five year lows.

Gold prices have been on an incredible roller-coaster ride over the past couple months, whipsawing like crazy. And contrary to popular main stream propaganda, the price volatility has had had absolutely nothing to do with fundamentals. Prices have been driven down by speculators on Comex who have been able to use huge short positions to short gold futures.

While the downside of their action is creating a distorted and unrealistic price for gold, the lower price is creating a wonderful opportunity to buy.

The prices of Brent crude and West Texas Intermediate have plummeted over the last few months. 

Both Brent and WTI tumbled 18% in November as the Organization of Petroleum Exporting Countries decided to maintain its 30 million-barrel-a-day output target. Crude has traded in a bear market since October amid the fastest pace of U.S. production in three decades, rising output from OPEC and signs of weakening global demand.

OPEC, responsible for about 40% of the world’s oil supply, pumped 30.6 million barrels a day in November, above the 30 million target for a sixth month, according to data compiled by Bloomberg

The results of the gold referendum showed that 77.3% of the Swiss people voted against the gold initiative. As a reminder, the Swiss Gold Initiative was proposing that the Swiss National Bank (SNB) increase its gold reserves to at least 20% of its assets, ban all future gold sales from the bank; and repatriate all of its gold stored abroad.

A yes vote that was vehemently opposed by Swiss government officials as well as the SNB president, would have brought about a complete turnaround of the lax monetary policies of Switzerland, Europe (ECB), the United States and Japan.

The result of the referendum shows that individuals really don’t have a clue about monetary matters and are prepared to put their faith in our current fiat currency system which is continually manipulated by central bankers and their governments.

Last Thursday, the price of gold came under some selling pressure once again, when the European Central Bank (ECB) said it wouldn’t consider adding to bullion purchases. However, the price of the yellow metal pared earlier losses as the euro rebounded against the dollar after the ECB chief Mario Draghi said the bank would re-evaluate the case for more monetary stimulus next year.

The ECB announced that it will maintain interest rates at current levels. The central bank cut its 2014 growth forecast for the Eurozone to 0.8% from the 0.9% it was predicting three months ago. The downgrades were sharper for 2015 and 2016. Growth next year is expected to be 1%, down from the earlier forecast of 1.6%, while the 2016 forecast was cut to 1.5% from 1.9%.

The ECB also lowered its inflation target following steep falls in the oil price with the annual rate expected to be just 1.6% even in 2016, still below its target of close to but below 2%. Eurozone inflation is currently just 0.3%.

In the press conference after the announcement, Draghi confirmed that the central bank will not buy gold as part of its asset-backed purchase program. When asked what types of assets the governing council would buy as part of its quantitative easing program,  he said that the central bank will consider a package of broad-based asset purchases including sovereign debt but not gold. “We discussed all assets but gold,” he said.

Draghi also emphasized that more time is needed to gauge the effect of prior stimulus and the need for additional easing. He noted that ECB will reassess the policies early next year and "it doesn't mean at the next meeting".

In simple terms this means that the ECB will willingly buy toxic assets including Greek bank CDOs, Italian bonds---despite the fact that the EU’s fourth largest economy, was downgraded to just a single notch above junk by S&P on Friday, Spanish condo HELOCs, and Portuguese Used-Car ABS... but absolutely not gold. This is in sharp contrast to what the Chinese and Russians are doing which is buying massive amounts of physical gold.

Since 2013, the People's Bank of China has not changed their data that showed the nation's official gold reserves stood at 1,054 tons as of the end of 2013. However, gold transactions at the Shanghai Gold Exchange have been in the vicinity of 1,100 tons a quarter now and the monthly delivery volume of gold has risen to 212 tons from the respective amounts of 362 tons and 44 tons in January 2008, reported National Business News. The newspaper also added that the transaction volume has picked up rapidly since April 2013, when international gold prices began to plunge.

According to analyst, Alasdair Macleod, gold demand in China doubled to 4,843 tons in 2013, which didn't include gold purchased by the Chinese government for deposit overseas.

In an article publicized on his blog, industry analyst Koos Jansen said that based on gold withdrawal at Shanghai Gold Exchange, China's gold reserves has been increasing at an annual clip of 1,761-1,746 tons in recent years, adding that the official amount of 1,054.1 tons for the nation's gold reserves is a gross understatement. Jansen believed that China has become a major buyer on the global gold market, with its gold reserves having surpassed that of Russia. Jansen also said that China has imported 8,000-9,000 tons of gold since 1995, which, should they be put under the custody of the People's Bank of China entirely, would have boosted the nation's official gold reserves to a level on a par with that of the US. However, it is most unlikely that the U.S holds the amount of gold that they claim to have.

Meanwhile, latest figures released by the U.S Treasury Department show that the government’s official debt balance has just surpassed the $18 trillion mark (with additional unfunded liabilities estimated at more than $100 trillion). 

The Daily Treasury statement that was released Wednesday afternoon as Americans were preparing to celebrate Thanksgiving revealed that the U.S. Treasury has been forced to issue $1,040,965,000,000 in new debt since fiscal 2015 started just eight weeks ago in order to raise the money to pay off Treasury securities that were maturing and to cover new deficit spending by the government.

This mode of financing the federal government resembles what the Securities and Exchange Commission calls a Ponzi scheme. “A Ponzi scheme," says the Securities and Exchange Commission, “is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors,” says the Securities and Exchange Commission.

“With little or no legitimate earnings, the schemes require a consistent flow of money from new investors to continue,” explains the SEC. “Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out.”

On Friday, US non-farm payroll increased to 321,000 in November versus expectation of 225,000, which was the highest number since January 2012. And, the unemployment figure was unchanged at 5.80% as widely expected.

Despite the very positive payrolls report and the rejection of Sunday’s Swiss gold referendum, gold prices have held reasonably well. The price of the yellow metal has also held while the price of crude oil has dropped sharply.

While many individuals maintain that gold is simply a barbarous relic, I believe that it will soon have a more important role to play in the global monetary system. But, more importantly, it is an insurance against the ludicrous policies of our current financial leaders who will push us into a major global currency crisis.

In the meantime, the on-going currency war look set to intensify. The greenback soared to a seven-year high against the yen and a two-year peak against the euro while the ruble has dropped by more than 25% in the past two months.

In other currencies the Mexican peso lost 3.0%  last week, the Colombian peso was hit for 4.3% the Peruvian new sol 1.1%, the Brazilian real 0.9% and the Chilean peso 0.6%. The South African Rand lost around 4.5% as the country slowly retrogresses into another African disaster story with on-going power cuts happening nationally thanks to the total mismanagement of the country’s electricity provider Eskom. It has been well documented that since the ANC became the ruling party, they have failed miserably at providing any real form of democratic society and instead have used their power to loot the nation’s wealth practically crippling the economy. When it comes to electricity, they have managed to turn what used to be one of the world’s cheapest electricity providers into an organisation filled of corruption, and theft as it struggles from one crisis to the next. In the latest crisis, traffic light failures have created a gridlock in the major cities and continual power outages are costing business millions. It seems that the currency there is set to fall further in the coming months.

The dollar's strength is helping to push commodity prices down, as many commodities are priced in dollars, including gold and oil, which in turn doesn't help the efforts of the European Central Bank and the Bank of Japan to boost inflation in their countries. 

As more people become aware of what is really going on, they will accumulate physical gold and silver, and the prices will have to adjust to the real fundamentals and will no longer be determined by a handful of speculators. So, I expect to see prices trend higher in the New Year.

TECHNICAL ANALYSIS

Gold prices continue to hover around the $1200/oz. level and the 50-day MA. I expect to see more sideways action before a move to the upside.