[miningmx.com] – IT’S looking better for gold as the metal hovers around the $1,200/oz mark and, for the first time in years, there appear to be fundamental reasons for optimism over the metal’s future.
In technical terms gold has performed well and “blown through its 200-day moving average in recent days”, according to gold guru Martin Murenbeeld – chief economist at Dundee Economics – writing in his latest weekly Gold Monitor.
He reported that gold rose $89.40 in the week to Friday, February 12 and pointed out that “… you have to go back all the way to December 2008 for a larger weekly percentage gain in the gold price”.
So what’s going on?
Murenbeeld, a respected gold analyst who assesses the market using mathematical models to produce a range of likely outcomes ranked by probability, reckons a number of factors which have been flagged for many quarters are coming to fruition in “typically unpredictable fashion”.
These include: weak and volatile equity markets; a weaker US dollar; lower measures of real US interest rates; the Federal Reserve’s apparent decision that it will not hike interest rates anytime soon; continued high demand for gold in India and China and global debt and credit fears stimulated by the sharp drop in oil prices.
Both Murenbeeld and US Global Investors CEO, Frank Holmes, point to spread of negative interest rates as a fundamental change in favour of gold.
Interviewed on Bloomberg Radio, Holmes flagged the move of money into gold exchange traded funds immediately after the decision by the Bank of Japan to re-introduce minus interest rates as being significant.
He stressed he was not calling gold back to its previous peak of $1,900 commenting “that’s a long way away”, but he pointed out that when gold did hit $1,900 “… the real interest rate paid on a 10-year government (bond) take away the inflation rate was minus 3%. That rallied last year to plus 2%.
“Even before the Fed Fund was hiked you had a minus to plus 500 basis points swing that took gold from $1,900 down to $1,100. What will take gold back up is negative real interest rates in dollar terms.”
Murenbeeld commented: “Were the Fed to join other central banks in adopting NIRP – a negative interest rate policy – (unlikely in our opinion, but…?) the fact that gold pays no interest rate becomes an asset.”
Both Murenbeeld and Holmes also point out that gold surged in early 2014 and 2015 only to slump later in the year. Holmes says what’s promising about 2016 is this latest sharp jump in the gold price took place after the Chinese new year.
The run up to the Chinese new year is traditionally a key gold buying period after which demand typically drops off.
“The factors driving gold higher in early 2014 and early 2015 were different; Crimea was annexed in 2014 and the Greeks had another potentially disastrous election in 2015. This time it is the dollar, China, debt, credit risk etc …..This rise in gold looks different – more fundamental,” said Murenbeeld.
But he cautions: “The proof of the pudding for gold will come in the second and third quarters. Most everyone expects gold to weaken during this period.
“Were the gold price to rise (which is very possible as the dollar is undermined by politics and a Fed not able to raise interest rates on account of economic disappointments) this would be strong evidence that gold has turned the corner.”
