Below is an update of a number of interesting data points related to the gold market. Whether ‘interesting’ will become ‘meaningful’ remains to be seen, as most of gold’s fundamental drivers aren’t yet bullishly aligned. One must keep in mind though that gold is very sensitive with respect to anticipating future developments in market liquidity and the reaction these will elicit from central banks. Often this involves very long lead times.
If one looks at long term charts of gold, one can see that meaningful rallies usually start as technical short covering moves, which often are still at odds with at least some of the macroeconomic fundamentals. The starting points of these rallies often involve divergences with associated markets or data points. If the market is too far ahead of itself, these moves will be given back again quickly.
If a meaningful move has indeed begun though, the fundamental drivers will begin to fall into place as it continues, and it will become clear in hindsight that the market has anticipated these developments. It is therefore definitely worthwhile to pay attention to sentiment extremes and inter-market divergences.
One thing that has struck us as noteworthy lately is that the momentum of the decline in gold stocks has decreased significantly during the the most recent phase of the decline in the gold price – contrary to the much stronger relative momentum seen in the August sell-off.
This post was published at Acting-Man on December 28, 2016.