A lot of words have been written about the bear market price of gold. Conspiracy theories aside, much of the talk is of a less fearful investor, moving back into a risk-on phase of an economic cycle. But gold is not a special commodity. It seems to follow the same laws that have beset the metals index as a whole. There has been a clear down trend in hard, and energy commodities since Feb this year.
The cliff like drop in the gold price is more or less mirrored for copper and silver two industrial metals that have real uses, therefore robust markets. China the biggest buyer of is in a slowdown phase. Silver's biggest consumer, PV panel sales have seen a market collapse. If growth in china continues to cool, commodities as a whole will cheapen.
This falling trend has been seen before, and then reversed by bouts fo quantitate easing, this continues at a faster pace, with Japan now targeting to inflate its own economy by increasing the Yen supply. Seems that these actions are losing their potency, new money is not leaving the reserve banks at any kind of velocity.
The good news is there is a floor in the gold price. At least one that makes it uneconomic for miners. Peak gold was estimated to have passed in 2000, but records in volumes of recovery continue to be broken. But the cost of extraction sits somewhere around $1,200 per ounce up from about $500/oz at the peak. Gold bugs are right to stay away from miners.
In my estimation gold will not diverge from its downward trend as long as metals prices follow the same trajectory. Its still risk off, in all markets, the velocity of money at least in speculative trades has ground to a halt.
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