Another article posted on info.sharpspixley.com yesterday – a rewritten and reposted version of one I wrote a week ago.
Those of us who remember 1990s pop music may well recall the Brit anarchic band Chumbawumba and its major hit titled Tubthumping. Its refrain, which actually comprised most of the song was the repeated over and over – ‘I get knocked down but I get up again. You are never going to keep me down.’ which could well be the anthem for the gold price in recent months. (For a link to a YouTube feature of the band appearing on the David Letterman Show around 20 years ago now, complete with a probably unanticipated political add-on – ‘Free Mumia Abu Jamal’, not on the original recording – click here.)
Gold ‘knockdowns’ when gold appears to be in freefall are seeming to occur at ever increasing frequencies – indeed whenever gold seems to be making strong progress again, but as the song suggests it still manages to get up again. The falls are steep, and the recoveries gradual, but gold does seem to get back to where it was, and then some, over time.
If these ‘knockdowns’ had happened just a couple of times one could put that down to profit taking and normal trading with data driven gold being spooked by occasional bouts of adverse news. But this keeps on occurring. The drops and flash crashes have nearly all been very steep indeed, which does suggest some kind of external influence putting big paper transactions into play. But, what should be comforting for the gold bulls is that each time gold has been ‘knocked down’ in this manner it has subsequently ‘got up again’ mostly back to prior levels, although the overall effect may well have been to exert some kind of overall price control slowing down what we see as gold’s inevitable rise. Rewording the refrain from Tubthumping: ‘Gold gets knocked down, but it gets up again. You’re never going to keep it down’
The strange recent big sales out of America’s GLD, the world’s largest gold ETF, without similar sales seeming to have been made out of IAU – America’s second largest gold ETF – also look as though they may have been designed to help keep the gold price under control. The fact that these appear to have had little impact in actually depressing gold prices, although may have well helped prevent price rises in the light of continuing strong Asian demand for physical gold, could well suggest that gold is building up strength for an upwards breakout.
As to Asian demand, the anticipated fall-off in Indian demand after the pre-GST restocking is reportedly not taking place – at least not to the extent analysts had expected – and Chinese demand appears to be holding up to, or slightly bettering, last year’s levels. If one includes Turkey as being in Asia, there have been increasingly strong imports of gold going in to that nation. Turkey has acted as a conduit for gold going into other Middle Eastern nations, notably Iran, but one suspects these latest increases may reflect safe haven buying by the domestic population in the light of increasingly autocratic moves by Turkish President Recep Tayyip Erdogan, and other destabilising political events in the Middle East.
The North Korean situation and war of words between Supreme Leader Kim on the one hand and President Trump on the other have also been fanning the flames of uncertainty which has been positive for gold as a safe haven investment, both in the Far East and the USA, but if the rhetoric gets toned down on both sides, as we expect it might be, then we could yet see gold slipping back again, but the ongoing underlying rise looks inevitable. It may not happen as fast as the more bullish observers are suggesting though.
These facts, coupled with a small decrease in new mined supply, suggest that gold has the potential to again threaten the $1,300 level through the rest of what is normally a weak northern summer although there’s not much of it left to accomplish this. The American Labor Day holiday (Sept 4th this year), which is traditionally the end of the North American summer holiday period, often seems to be a game-changing date for the gold price to move in either direction. It will be interesting to see what is in store for us in this respect this year, but in our view the force is now with gold – to add a Star Wars analogy to the Chumbawumba refrain. Be prepared for a steadyish rise, but still with the occasional ‘knockdown’ en route.