Everyone is so bullish on gold!
The gold price is flirting with the $ 1000 threshold for some days now. This move comes after the price of the precious metal has been hovering around for 18 months.
So is a breakout imminent? Indeed some technical factors may suggest this move.
But this blog does not favor technical analysis so we will not discuss this.
Normally bullish market mood indicates that all positive factors are already priced in and every market participant is already positioned. So the expected move will not happen because there is no new demand coming to the market.
Could it be different this time?
If you seek an answer watch out how big sovereign market participants behave:
- China and other Asian countries for some time now expressed their low confidence in the US-Dollar and are seeking to diversify their currency reserves. And for sure they will not jump into the Euro as this monetary union has their own structural problems which are now starting to surface.
- China for some time now is closing deals for resources and commodities. And since 2007 the country is also the biggest gold producer as the South African Mines are starting to deplete.
- Hongkong is repatriating its physical gold reserves from London and invites Asian central banks to store their gold with them. The Hongkong Monetary Authority wants to create a new gold bullion ETF based on gold stored in the vaults of Hongkong.
These market participants make big longterm strategic moves. They are not positioning themselves for the short term.
The US are running a budget deficit of 13% of GDP. The big Western European countries are at an average of 7%. The financial crisis has been accomodated essentially by throwing money at the problems. This money is still floating around.
Their are first signs that the Fed and other central banks are disposed to tolerate a higher inflation rate than they actually admit. An inflation rate of 0 to 2% seems to be a thing of the past once the economy picks up.
So will the central banks be credible when they have to start to raise interest rates again?
Perhaps you should watch out for more bullish signs of the gold market in the coming weeks and months!