Tags: gold | Fibonacci | retracement | market

Gold Investors Should Consider Technical Indicators of Price

Monday, 20 July 2015 09:47 AM Current | Bio | Archive

When global trade began today, we saw a remarkable slide in the price of gold that brought it down to a low of about $1,109 per ounce, which was a price level we hadn’t seen since 2010.

For people who take into account “Fibonacci” retracements, which is a method of technical analysis for determining support and resistance levels, this slide in the gold price represented a 50 percent retracement from the $1,921 an ounce high on June 9, 2011.

It might be good for people who are interested in gold to pay attention to this 50 percent retracement level that has been “touched” for a moment, because if that level should be breached, which hasn’t been the case so far while it isn’t a sure thing it will be. But “if” that were to occur, the downward slope would open to the 38.2 percent retracement, which has a price level at about $890 per ounce.

Please take care, I only mention this because what happened today is a warning signal of what could happen, but doesn’t mean it “will” happen.

Now, the main reason for that sudden drop in the gold price was the fact the People's Bank of China disclosed the country added 604 tons of gold to its reserves in the past six years, which have today a value of about $22 billion, this after having risen during the six years that lead up to 2009 by 454 tons.

The sharp drop in the gold price reflects clearly the disappoint of market participants that had anticipated a far much important accumulation of gold and on the contrary they saw its share in China’s huge reserves had actually fallen to 1.65 per cent from the 1.85 percent where it stood in 2009.

Now, all this doesn’t mean the Chinese authorities couldn’t increase over the medium term their appetite for gold as part of their reserves when we take into account their ambition of raising the Chinese yuan or renminbi to the status of a world-wide used reserve currency.

By the way, the Chinese yuan or renminbi cannot be used at present as a reserve currency for the very simple reason the Chinese government still maintains capital controls on the conversion of its currency.

All that said, as a long-term investor usually there come "rare" investment opportunities when the investment category they are considering shows signs of being out of favor by the herds, which at present seems to be more and more the case with gold.

That said, it’s also a fact, if possible, buying gold at or below its production cost price doesn’t happen that often.

The problem for most investors don't really know how to have a good idea of what an interesting gold price could be.

So, an approach could be when we take into account for example Barrick Gold Corp., the largest gold miner in the world, its 2015 full year gold production all-in sustaining costs guidance that stands at $860-$895 per ounce while its cash cost per ounce is at $600-$640 an ounce.

Now, taking the numbers of Barrick Gold as a trustworthy guidance for what the real cost range is to produce gold in the real world while keeping in mind the “technical” Fibonacci retracement ranges for gold whereby the 50 percent retracement now stands around $1,109 per ounce of gold and the 38.2 percent retracement stands at $890 per ounce from its high in 2011, I think these two completely different references on what the price means against existing market and cost measurements this could be a helpful tools to long-term investors for when to consider accumulating some gold.

Maybe not such a bad idea keeping in mind what German-born American economist Hans F. Sennholz said: “For more than two thousand years gold’s natural qualities made it man’s universal medium of exchange. In contrast to political money, gold is honest money that survived the ages and will live on long after the political fiats of today have gone the way of all paper.”

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When global trade began today, we saw a remarkable slide in the price of gold that brought it down to a low of about $1,109 per ounce, which was a price level we hadn't seen since 2010.
gold, Fibonacci, retracement, market
Monday, 20 July 2015 09:47 AM
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