Gold chart & update

The climate: Continued stress of banks and other financial institutions. In my opinion the source of this stress is illiquidity of non trade able (unlisted at a public exchange) financial “products”.

Outlook: High volatility is present in all markets, extreme events in which investment banks remove huge amounts of liquidity while central banks creates huge amount of liquidity to fill the “holes”.

Technical:

Recent pullback was the biggest since August 2007 bottom, the spot price of gold came down ~128$ (905$) since it's top at 1033$. The spot price of silver dropped from it's top at ~21.35 to ~16.67$.

The trend line which connect the August and November bottoms is still intact. See the chart below for Fibonacci proportions and less steep trend lines. If the recent bottom zone at 905$ - 884$ will not hold then the price might retrace to about 790$ if not lower.

Later on and depending on the fundamental events which will be reflected on the charts – gold might move higher or maybe much higher then recent highs.

XAUUSD update

The price of gold advanced about 300$ in the last 6 month. If you multiply that by ~150,000 tons (estimation of total gold above ground - worldwide) then all of that is worth ~ 150,000{tons) x 30,000{average ounces in ton) x 1000(gold futures price estimation) = 4,500,000,000,000$. 4.5 Trillion.


What does it mean? Well… all the gold that people have ever mined is worth about:

100 times more then the capital of the richest man in the world.

10 times more then the market capital of gigantic Exxon Mobil Corp. (XOM)

…


Some significant amount of system risk is priced in, as well as liquidity / inflation expectations.

However, recent bearish trend in many equity markets is suggesting possible downside for gold as well- the liquidity factor.

Perception of system risk should possibly be reduced by needed co-operation of international regulators and primary national institutions.


Technically, Elliott wave pattern suggest a possible completion of sub wave but short term higher high is still possible (less likely). At this stage if a serious correction is underway then a 200$ + correction is not abnormal.

If you participate in the gold market then refer to mid 2006 and note the magnitude of the correction back then. Such scenario can easily occur again.


Gold is much more popular now then 2 years ago, that to me means that from a sentiment point of view gold is either fairly valued or maybe somewhat overvalued. Nevertheless, in coming years it is still possible and also likely that higher highs can be reached.

Gold spot weekly chart

Gold OTC derivatives

Total OTC derivatives are up from ~414 trillion to ~516 trillion for notional amounts outstanding (+24.6%) and up from 9.682 trillion to 11.140 trillion at gross market values (+15%).

Gold OTC derivatives are actually down from 0.640 trillion to 0.426 trillion for notional amounts outstanding (-33.4%) and from 56 billion to 47 billion at gross market values (-16%).

Gold OTC derivatives are still just a tiny part of total OTC derivatives (less then 0.1% for notional value and a~0.42% at gross market values)

The decline of gold OTC derivatives is probably a direct result of:

1) De-Hedging by gold producers.
2) Market participants move their business from OTC derivatives into more liquid, transparent and regulated markets such as COMEX (GC) and CBOT (ZG).

You can see the BIS OTC derivatives report here

XAUUSD, XAGUSD Charts

Significant corrections are taking place for both gold and silver. So far this is the sharpest drop seen since the mid august bottom. Each Fib line is currently a possible downside target.

Personally, I observe that at the moment some other markets offer superior short term trading opportunities.


Silver (Spot price) 8 hours chart


Gold (Spot price) 8 hours chart