3 Things That Don’t Affect Price Of Gold

It’s important to understand Gold’s fundamentals as it will help us confirm a new bull market.

To this point, Gold’s rallies have failed to make higher highs and higher lows because, although there has been an improvement in fundamentals, the fundamentals have not turned bullish yet.

The technical trigger will be Gold and gold stock outperformance of the stock market which will likely precede the fundamental catalyst of Fed rate cuts. The start of rate cuts will indicate declining real interest rates which is the key driver of bull markets in Gold.

With that said, here are some things that do not impact the price of Gold.

Geopolitics

This was borne out of the 1970s because geopolitical developments then did impact Gold. They affected Oil prices which impacts inflation. Random geopolitical events have no immediate impact on Gold unless they directly impact the fundamentals. Unless an event has immediate and sustained consequences for energy prices, it should be ignored and deemed short-term noise.

Central Bank Buying

This sounds impressive and important. Central Banks are powerful entities who help manage economies. Surely, they know something? According to Bloomberg, Central Banks are buying Gold at the fastest clip in almost 50 years!

The truth is Central Banks don’t have any inside information and their buying or selling cannot be used for market timing purposes. The chart below shows that the 2001-2011 run began with record central bank selling. Central Banks have been consistent buyers since the 2011 peak. If anything at all, the information is a contrary indicator.

 

Supply & Demand

Gold is not like other commodities. It acts far more like a currency as its drivers are inflation, interest rates and the US Dollar.

The price of Gold doesn’t respond to changes in supply and demand. The chart below from Nick Laird shows that demand actually surged in the 1980s and 1990s, creating a rising deficit throughout the late 1980s and entire 1990s. But that was a time when the price trended sideways to lower.   

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When Gold fundamentals turn bullish, that is when massive amounts of capital will flow into juniors, creating a historic bull market. To learn which ...

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Jacob Paterson 1 month ago Member's comment

The price of #gold will move higher when the free markets are allowed to control the price. Not the paper markets.

Derek Snyder 1 month ago Member's comment

The idea of selling something you don’t physically own. Is the most ridiculous form of fraud imaginable. Its criminal IMO!