Gold - Disconnect Between Fundamentals And Price. Perception Rules

By: Michael Noonan | Sat, Jan 18, 2014
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What will it take to turn the gold market around? One would think it would be obvious that fundamentals are not the answer, while so many believe that fundamentals rule. We are reminded of the fundamentalists, especially "value investors" whose financial world was literally turned upside down when the stock market crashed in 2008. While "value" and "fundamentals" were considered the economic bedrock of the stock market, it turns out that everything is really steeped in perception, for they changed dramatically.

The stock market's investment compass was smashed back then, when many once considered solid companies lost half their value, some even more. The investment community was stunned. But that is "ancient" history, as is almost anything that is longer than a few months in time. That has been [nearly] forgotten and replaced by the fiat euphoria levitating the stock market for the past few years.

What does this have to do with gold? Like everything else, it is all about perception, even in the Precious Metals, [PM]. It gold a commodity, it is money? [History proves that only fools consider it a "barbaric metal."] It has been the most consistent barometer of value for many centuries. This is but one perception that many in the PM camp have forgotten to hold fast, and they only focus on current price relative to its peak of a few years ago. A few years out of over 5,000, and some wonder about the validity of gold as a safe haven? Oh, ye of little faith comes to mind.

It is a misplaced hand-eye coordinated thought. "All of the fundamentals are screaming high demand for and a shortage of physical gold, but price keeps on dropping." Or any close variation that captures price insecurity in the minds of "gold bugs," or as we call them, smart people. If your perception is focused solely on where the price of gold is, as opposed to where you think or believe it ought to be, the elites would like to sell you a renewable subscription to their "Fiat Is Better" newsletter.

Why is gold not at higher price levels?

An excellent question, and we repeat, the perception that fundamentals should rule is a misplaced one, at least for now. Everyone who is even remotely interested in gold knows that the COMEX and LBMA vaults are just about bare. The COMEX has been nursing a default on physical delivery for gold and silver since last summer. There have been none. Those who stood to take delivery received cash, or rolled forward. This is certainly an acknowledgment that there is no gold or silver, yet that fact has not translated into a stampede of customers demanding gold. Even Deutsche Bank cannot get delivery of their own gold!

Keep focused on your objectives and the reality of events. Right now, people can buy gold coins and bars almost at will. If Deutsche Bank has to wait seven years to get just some of its gold back, and they are not an isolated example, if the vaults are nearly depleted, and you can buy gold coins and gold bars from dealers every day, in light of the whole world recognizing a shortage, everyone should be taking advantage of the disconnect between perceived value and the reality of current prices and buying as much as they can!

One thought to keep in mind is, if fundamentals are not what is moving the markets, then what is? If the perceived catalyst of fundamentals is wrong, then there must be some unseen forces at work. If we can perceive what those forces are, we may better understand why PMs are priced where they are. We will have a related article on silver, tomorrow, to address that one.

For right now, there is a 35% off sale going on.

This is lock-and-load, fire at will, and not a time to be keeping one's powder dry. If you know all the available physical gold is being shipped East, primarily to China, and you have immediate access to however many ounces you want to buy, why is there any concern over the current price of gold? What happens if you cannot buy at any price?! Better a year early than a day late.

The reality is, whatever gold is available is relatively cheap. If you can answer the question, for how much longer will you be able to buy it, then plan accordingly. If you cannot answer that question, then plan accordingly for that event, as well.

We understand that the charts reflect the bogus COMEX manipulated paper price of gold, but that is all that is available, and the physical market, measured by tonnes going to a variety of mostly BRICS nations, is at a premium to paper. However unreal the COMEX and LBMA pricing mechanism may be, it is all that is available, at least for now.

Despite the fact that others who make predictions draws reader attention, we do not make them. For one, no one knows how the future will develop, just review all of the predictions from 2013 for proof. Secondly, there are utterly unnecessary. The market will indicate when the trend has changed, and there will be ample opportunity to be long paper futures, that is, if there is still a paper futures market in the next year.

The trend remains down. Any predictions you may be reading currently are mostly a regurgitation from the same ones who made predictions last year. Is it really necessary to ask how they worked out? One thing we can say about the charts of the market is that they do not mislead. They can be misread, at times, but overall, the trend is accurate.

Will the current 1200 area continue to hold? Odds say no, based only on the current down trend, but things can change. However, it is always best to wait for confirmation of a change before acting contrary to the current trend.

Compare how quickly price rallied from the late June low, and the wider bar ranges relative to how price has been "hugging" that support line for the past several weeks. Also, the ranges are smaller and volume is less. The difference is what suggests that price can still go lower, or do more retesting of the 1200 area, at a minimum.

Can price, or will price rally further into next week? Odds say yes, based upon the upper range close, Friday, but how much and for how long, given the trend line resistance is not highly promising. This does not mean price cannot rally $50 next week, but that we have to make judgments based on what is known, at this time.

Just look at the chart and ask yourself, how many longs are making money since 2011? To be clear, this pertains to the futures only. We have been constantly advocating the purchase of physical PMs throughout the decline, but for a vastly different reason.

Gold Weekly Chart
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October and November saw 1260 as support in gold. Once broken, in November, 1260 has become resistance. Proof of that was when price was rebuffed near mid-December on a retest.

We saw the small range bars, 2nd and 3rd from the end, as weak demand, especially after price declined on a wider range bar, 4th from the right. Friday's ability to rally came as a surprise, but the overall picture is still one of weakness. Maybe 1260 will be tested again this coming week. It will be important to observe how price reacts to get an idea of the current strength of weakness for gold futures.

Gold Daily Chart
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Michael Noonan

Author: Michael Noonan

Michael Noonan

Michael Noonan is a Chicago-based trader with over 30 years in the business. His sole approach to analysis is derived from developing market pattern behavior, found in the form of Price, Volume, and Time, and it is generated from the best source possible, the market itself.

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