Gold Bulls Regain Some Traction

Wednesday, 11 June 2014
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Published in Gold Investing
Gold Bulls Regain Some Traction PhotoDune.
Whether you call it a correction or a relief rally, this week certainly comes as a relief to gold bulls — and the sudden turnaround in gold prices lets me hold my analyst head a little higher, though gold is still solidly down on the 30-day chart.

Positive-Pullback

Gold was up $2.01 to $1,261.71 in early Wednesday trading; and silver added $0.03 to $19.21, lowering the silver/gold ratio to 65.7. The price move also trims the Dow/Gold Ratio slightly to 13.3. Overall it’s been a great five days.

While it would be easy to dismiss the rally in gold prices as short covering and bargain hunting — and those are certainly factors — the price moves this week are more bullish than either of those could account for individually. The price recovery also comes at a time when the Euro has been steadily shrinking, while the dollar has been getting stronger. Typically a strong dollar keeps downward pressure on commodities, including gold and silver, but those commodities and crude oil have been bucking the trend.

China has been quietly amassing the world’s largest reserve supply of gold; they’re up to something.

The bears still haven’t given up the fight, and have some near-term technical advantages going forward. Still, $1,200 seems like a stretch, so it's necessary for me to admit that Goldman Sachs was right about their summer price target, which now seems comfortably distant. But when prices go down, some gold mining companies fight lower prices by increasing output, potentially subjecting any uptrend to a rapid reversal.

For now at least, the future for gold looks brighter, as gold futures climbed in India in anticipation of the fall festival season.

If you remember, we've also been talking about the likelihood that China has been secretly increasing its gold reserves. Now the mainstream media have picked up the story, with Reuters pointing out that direct imports of gold have nearly doubled since last year — which means someone is accumulating a lot of gold, and the most likely candidate is China. It’s also possible China is also using preparations for the gold exchange in the Shanghai Free Trade Zone to move even more gold in under the radar.

All the buying is likely building to a surprise announcement that China has been quietly amassing the world’s largest reserve supply of gold, and it’s not all for the new exchange in Shanghai; they’re up to something. But given the Chinese government’s secretive nature, we’re probably not going to find out what it is until they spring it on us.

Whatever it is, expect China’s big surprise to be a boon to gold prices and a blow to the dollar.

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Trevor Gerszt

Trevor Gerszt has been passionate about gold since childhood. Growing up in South Africa, the world’s second largest gold producer, Gerszt spent his youth collecting gold coins. Surrounded by a family of experienced coin collectors, he gained valuable insight about the precious metal.