Saturday, August 27, 2016

Despite Lower Prices Of Gold There Is Only Marginal Selling Pressure

Most recently gold / silver related stocks corrected substantially. As I wrote in one of my last posts  - this week there was even a panic selling. Now many stocks are trading 20% - 30% below their last tops. 

On the other hand, gold prices saw just a small correction. Since its top, recorded in early July ($1,367 per ounce), now gold is trading at  $1,321 per ounce (a drop of 3.4%).

Another thing - since early July, when the current slump in gold prices had started, there were four weeks when GLD (the biggest world gold ETF) recorded gold outflows:



What is more, it seems that selling pressure (gold outflows) is dissipating. The chart above shows that the amount of gold outflowing from GLD is going down:

  • during the week starting from August 12 as many as 639 thousand ounces of gold went out of GLD's vaults
  • then, during the week starting from August 19, only 143 thousand ounces left GLD
  • last week GLD reported small gold inflows of 19 thousand ounces.
It seems that despite lower prices of gold investors are not eagerly selling the yellow metal.

The chart below shows GLD flows from a little bit different perspective:  




This time the red line shows cumulative gold in / out flows. Two yellow boxes show periods when GLD was recording gold outflows. During these periods gold was going nowhere (it was trading in a trading range).

The first period (the first yellow box on the left) lasted around one month (March 2016).

Now we are in the second month of a slump in gold flows. What I am waiting for is a renewal of the upward trend in gold inflows. Shortly after that we should see gold prices to go up. 


US dollar and gold

Last but not least. The chart below shows the relationship between the US dollar and gold. Usually, when the US dollar goes up gold goes down and vice versa.
However, since early May this relationship is no longer valid:



Note: for better comparison the upper panel of the chart shows the inversion of the US dollar (it means that the inverted US dollar and gold should, as a rule, behave in the same way).

The area marked in red shows the breakdown of the usual relationship. Since May 2016 gold has gone up while the US dollar has gone...also up (and the inverted US dollar has gone down).

Well, for the time being let me leave this phenomenon without any comment...

4 comments:

  1. Gold stocks are acting worse than gold. Any comment?

    ReplyDelete
  2. Harry,
    Thanks for your remark. The answer in today's post.

    ReplyDelete
  3. What is your opinion on the latest drill results from Wesdome?

    ReplyDelete
    Replies
    1. I think I will drop a post on that issue soon

      Delete