gold investment, silver investment


Don’t Miss These Rare Fundamental and Technical Developments

April 1, 2019, 9:04 AM Przemysław Radomski , CFA

It’s not that often that we see such a strong confluence of two rarely occurring phenomena. The deeper you go in exploring them, the more sense they make. You see, it’s the strength of complementarity in action. Never to miss a paradigm-changing event, we’re proud to be the first to share this ground-breaking knowledge with you.

Let’s start with the fundamental and underappreciated one. We’ve just seen an inversion in the gold yield curve, with the long-term rates dropping below zero. Despite the critical weight of this news, there were zero reaction to this in the mainstream media.

Gold Yields

The inversion by itself is an uncommon phenomenon, but what is truly breathtaking is the move below 0 in the long-term gold rates. This stealth introduction of the GNIRP (gold negative interest rate policy) in case of long-term rates may influence the precious metals market in a profound manner as thousands of investors rush to the nearby banks to deposit gold for minimum 5 years.

Gold is a sought-after asset class due to the positive cash flow it brings and this event is meant to push out gold investors to the long end of the gold yield curve. Let’s admit it folks, on the short-end of the curve, gold has become a certificate of guaranteed confiscation and therefore it is the only rational choice to part with it for the above-mentioned time horizon as minimum.

In case of gold, the yield is shown for the side of the contract that runs the deposit facility. Normal, positive rates, mean that they charge investors for storing their gold for them. The negative rates mean that they will now be paying investors for the privilege of storing their gold for the long run. Investors, who decide to trust the bank or any other depository with their yellow metal for 5 years or more will receive a monthly payment. Some facilities have already reported record inflow of gold. Hurry up before the storage space gets fully booked out. This is not the time to shop around for a better deal. The spokespersons for the head deposit facilities pledged not to sell the gold received through this program on the open market. It is reported that they failed to prevent automatic winking while making the pledge.

We didn’t feature it previously, but – in addition to technical points that we have made earlier – gold also created an ultra-rare “happy cat” formation.

Happy Cat

The gold price pattern is very difficult to spot, because the cat’s head is based on both: price and volume readings and they very rarely align to create it. The ears of the cat are based on the medium-term price moves and its body is based on a long-term bull market. The cat’s tail is the final part of the preceding downtrend (here: the action that we saw before 2001).

The cat’s right ear should ideally be higher than the left one – this factor increases the pattern’s reliability. The cat is always looking into the future and it’s looking at the future bottoming prices. The look alone is not a particularly precise technique, because the cat’s interested in what’s going on and his eyes are wide open – it’s difficult to tell what he’s really looking at. It’s actually analogical to the horse’s perception of the term “now”: it’s really now and it means forever. Fortunately, the above technique can be supplemented by the use of the Fibonacci whiskers.

The whisker should start at the time of the most recent medium-term bottom and it should be based on the most recent high. After applying the above, the lowest whisker is the line to which gold is likely to – approximately – move before the final bottom takes place. Combining both techniques point to the proximity of $900 as the next long-term forecast for the price of gold in the second half of the year.

Unfortunately, the formation doesn’t provide any details with regard to the shape of the decline as cats can be quite unpredictable in the short run. The same for horses.

Be sure to check the date, before acting on today’s article :-)

Thank you.

Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager

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Feb Market Overview

Gold Market Overview

Last month, we laid out our gold outlook for 2020. In the February edition of the Market Overview, we update our fundamental analysis to incorporate the latest data, in particular those about the US fiscal policy. As the bipartisan consensus is that deficits don't matter, the perspective for gold this year could be better than we previously thought. Second, we look beyond 2020 and sketch the fundamental trends that will likely shape the global economy and the gold market through the whole 2020s.

Moreover, we will analyze two important recent developments. The first one will be the 2019 repo crisis and the following Fed's intervention in this market. Second, the Riksbank has ended recently its experiment with negative interest rates. What does it all imply for the gold market? We invite you to read our Gold Market Overview and find out!

Read more in the latest Market Overview report.

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