8th February - Conditions for a Gold bull market
08 February 2016
TECHNICALS:
WEEKLY CHART
The Gold market has off the Prior High support 1030 from 2008.
DAILY APRIL 16 CHART
Short-term The market needs to stay above this Prior High.
But the signs of a well-structured bull market are already in place.
See how the prior Highs have been good support from the market since the rally started in early December 2015
FUNDAMENTALS:
Has Gold bottom out?
After the financial crisis ended the Dollar strengthened because of:
As that happened Gold’s safe-haven status gradually eroded to the extent that we forecast a bear market that could see the price sink back to US$400.
But in the event, so far, Gold has proved more resilient.
Is there now a case for expecting a fresh bull market in Gold and what would be the necessary conditions?
Until very recently the general consensus was the US Fed would raise rates maybe another four times this year. That was because as policy makers thought the US economy was growing at a sufficient pace to allow monetary policy to be gradually reset to a more normal level after several years of virtually zero interest rates.
But no sooner had the Fed hiked in December than US economic data began to develop a worryingly weaker trend. The ISM manufacturing survey has been below 50 for several months and flags a recession in that sector. The more dominant ISM non-manufacturing survey has remained above 50 but has, over recent months, continued to weaken indicating the economy is loosing momentum. Only Non-Farm Payroll of the major indicators has continued to show strength. But that ended on Friday when the report came in below consensus and much weaker than December’s read.
So the question begs asking: what happens if a new US recession hits this year? US interest rates remain very low at only 0.5% and the Fed still carries a bloated balance sheet after 3 rounds of QE.
The Euro zone economy is still struggling to get a self-sustaining recovery going. So too is Japan having just introduced negative interest rates. Even China is seeing weaker growth rates and a collapsing stock market and the IMF recently cut its forecast for global growth by 1%.
But there is more. The falling oil price should act as a growth stimulus as it increases consumers’ disposable incomes, but the oil price collapse when taken together with weaker commodity prices is hitting those economies that derive their wealth from commodity and energy exports. They themselves may soon be in need of an international bailout.
Clearly, with monetary policy globally still set at crisis levels, a new recession would pose an unprecedented challenge for global policy makers. Already the Dollar has weakened in recent days as expectations of further US rate hikes this year have all but evaporated. A number of analysts (including us) are asking the question : did the Fed get it wrong when they hiked in December?
If the risks of a new recession in the US continue to rise, the Dollar will probably weaken further. Then the only tangible asset investors will be able to turn to is Gold.
We don’t think the conditions for a new Gold bull market are currently in place. But if we see many more months of weak US data they soon could be.
In summary: don’t sell gold.
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18th February - World stock markets send conflicting signals 
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