The central banks are holding the gold prices up, and without their buying power the prices would probably trade lower, so the central banks are one of the greatest demand components for the gold prices.
Yesterday, Switzerland could boost the gold price, but they didn`t. Switzerland had a referendum yesterday, and voters rejected a referendum requiring the Swiss National Bank to hold 20% of its 520 bullion franc balance sheet in Gold. Switzerland already have the worlds highest amount of bullion per capita.
If they voted yes, they would have to purchase at least 1,500 metric tons of gold over the next five years, and could have helped the gold price to skyrocket. Two third of the population in Switzerland voted no, and with lower oil prices, and imminent raising rates in the U.S, the demand for gold is declining as a hedge against inflation.
There was some support for the gold right before the vote, and there is some pressure on gold now. Right now, the gold is trading at $1,171,00 and is down followed by silver which is plummeting at the moment. The outlook for gold is not looking good right now, and signs of dangerous deflation have also made the gold less attractive.
Gold is also a reliable safety net that a country can have against an impending crises or a currency meltdown, but that is not the scenario right now, because the U.S dollar is increasing. The U.S dollar has been your safe heaven for months, not the gold which I talked about months ago.
The investor sentiment is negative and gold prices are once again headed for the trading area at $1,150, which is a support level that have been in focus for a while now.
It shouldn`t be like that, because what we see now is massive quantitative easing, Ebola, turmoil in the Middle East and rebellion in Ukraine. This is normally enough to make the gold prices to skyrocket, but not this time.
The question is when the gold price will start to climb, not if. Unfortunately, I don`t think that the price will increase next week or in the near future. I like gold, but I can`t hide the fact that the gold has been in a bear market for years.
We are at levels putting many producers in a dangerous zone which is below break-even. We know the demand for gold is there. Huge demand from China and India, but more important is to look at the supply.
You buy gold when there`s less supply than demand. You buy gold when the U.S dollar and other currencies are doomed to lose value due to inflation. You buy gold when the money printing machine is heating up, and you buy gold when the debt is increasing.
This is the key. Take a look at the supply, and you know that this will change in the future. It is the opposite of what we see in the oil market right now. The oil shale revolution added billion of barrels of supply to the oil market that have pushed the oil prices down.
The supply in the gold market will not increase. Many gold miners will face problems when the gold price is declining and it is too expensive to start a new mine which cost hundreds of millions. I will look for bold bullion, gold ETF and quality gold stocks as a solid play in the future. Bearish in a short-term, bullish in a long run.
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