Whoa Boy; Reigning in the Galloping Gold Price

Whoa Boy; Reigning in the Galloping Gold Price

I have previously said that the signal for the end of a bull market - in anything - is often a blowout movement upwards that has everyone saying "Can you believe it?" Have we just seen that in the gold market last week? Before we answer that, we need to remind you that we have not been in a normal commodity price cycle with gold. It is all about a structural change in the bullion market and normal rules do not apply.

A week ago the bullion price was at US$4,980/oz, poised to punch through US$5,000/oz. It did so in style, rising to circa US5,600 in a matter of days, a rise of 10% almost overnight. By the end of the week it had given back all of the gains, falling by more than 10% at one point on Friday. Stop loss orders would have been going off like a gatling gun, especially from ETFs. That looked like a blowout but it needs to be put into context.

So, is it game over? Personally, I think it is great to have a pause and let the dust settle for a bit. There is nothing to complain about in terms of implied profitability for gold producers with the price of US$3,000-US$4,000/oz, prices much lower than today’s spot price. However,I am not saying the price will fall back to these lower levels.

What has changed in the big picture in a week? Nothing really. With Trump in office the chaos will continue. We have just seen over-zealous speculators get carried away and the enthusiasm has been reigned in, appropriately, for the time being. Next week? Who knows. Movements like this are sent to test our resolve and there will be selling by some, but there but has been no fundamental shift in the thematic.