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Gold & The Retail Investor

Stewart Thomson
Mar 19, 2013

  1. Hedge funds have been exiting the gold market, and shorting it. Most of the bearish analysis is based on forecasts of crashing investor demand.

  2. Many analysts are claiming the gold bull market is over, and you should sell all your holdings.

  3. I disagree. So does Merrill Lynch. “Our data shows that to sustain gold prices at $2,000/oz by 2016, investors need to purchase an amount of gold similar to that purchased in 2008, when prices hovered around $872/oz.” -Merrill Lynch, quoted by Investing.Com, March 17, 2013.

  4. Gold never declined after President Roosevelt revalued it in the 1930s. The average retail investor couldn’t even buy an ounce of gold, yet the price remained high. Asian central banks are engaged in what I view as market-based gold revaluation. Merrill is forecasting that while investor demand for gold will plummet over the next 3 years, the price will go higher.

  5. My long-held view is that at the end of this gold bull market, American retail investors will not be lining up in the street to buy, like they did in the 1970s.

  6. Instead, they will more likely be lining up in real breadlines, like they did in the 1930s. Central bank buying will push the gold price higher and higher, and their balance sheets will probably look vastly worse than they already do.

  7. Please click here now . That is Merrill’s forecast for investor demand. You can see that they are forecasting what could rightfully be called a total wipeout of investor demand.

  8. Every 2 weeks, the Federal Reserve releases statistics about their balance sheet. The next release comes later this week. Please click here now . You are looking at the chart of the Fed’s balance sheet. Since the sell-off in bonds and gold began in the fall, the balance sheet has grown quite substantially.

  9. Vice Chair of the Fed, Janet Yellen, has recently been making extremely dovish statements. Chairman Bernanke himself has clearly stated that the unemployment rate is totally unacceptable.

  10. Please click here now . This chart gives you a closer look at the Fed’s balance sheet growth. There is a clear uptrend in play.

  11. Merrill’s report could be an institutional “game changer”. Until now, most of the bearish analysis has been predicated on the view that retail and hedge fund liquidity flows are needed, to make the price of gold rise in a meaningful way. Many pension funds will pay close attention to this important report from Merrill, and direct their liquidity flows accordingly.

  12. Sadly, most of the current emails that I get from gold market investors are about how much lower they think gold is going. There is a lot of talk about the need to wait for a “breakout”, before applying capital into the metals market.

  13. Unfortunately, this type of thinking can destroy wealth, rather than build it. Fundamentals make charts. The fundamentals of the Fed’s balance sheet are likely to make gold and gold stock charts look very good, but only for investors who buy at lower price levels, when it is uncomfortable to buy.

  14. Japan’s central bank balance sheet may be set to grow, tremendously. Also, Mark Carney appears to be committed to growing the BOE balance sheet. 

  15. If Merrill’s report turns out to be the institutional game changer that I think it is, the current “disconnect” between the gold price charts and the Fed balance sheet chart may be about to be resolved.

  16. Either the Fed’s balance sheet must shrink, or the gold price must begin to rise. The current conundrum could continue for a bit longer, but I wouldn’t bet too much money on that idea!

  17. With both the Fed Chairman and the Vice Chair calling the current unemployment situation totally unacceptable, and Merrill Lynch stating that the retail investor can be almost entirely jettisoned from the gold market, without harming the price, the bears appear to be treading on ice that is thinner than a dollar bill.

  18. How low could gold go, before embarking on a rise that mimics the Fed balance sheet chart? Please click here now .

  19. That’s the monthly gold chart, and I’ve highlighted massive support that sits in the $1432 area. A decline to that level would make the disconnect between the Fed’s balance sheet chart and the gold price chart “bizarre and surreal”.

  20. As unlikely as such a decline is, investors need to be prepared for anything, in all markets. The new head of Japan’s central bank, Haruhiko Kuroda, probably won’t ramp up their balance sheet for a few more months. That gives the gold bears a tiny window of opportunity, to make their play.

  21. Regardless, I expect to see Chairman Bernanke become much more aggressive, in coming FOMC meetings. I think this meeting will be the last time you see him discuss the “costs” of QE very much, and rather than reducing the monthly purchases, he’ll ultimately move towards accelerating them.

  22. To view my short term outlook for gold, please click here now . Gold has likely broken out, upside, from a small symmetrical triangle. The Fed meeting this week could cause enough volatility to push gold down to the supply line of that triangle, in the $1580 area.

  23. If Chairman Bernanke says something wildly bearish, gold could begin a decline down to $1432, but I think that is highly unlikely. I also think that some gold investors may be over-focused on the events in Cyprus, and under-focused on the Japanese parliament approval of Haruhiko Kuroda. Aggressive traders should wait for this week’s FOMC statement before buying more long positions.

  24. I think most of the ingredients needed to begin a bullish trending move in gold, are now in place. Please click here now . That’s the GDX daily chart, and I’ve highlighted a “peppy” ascending triangle pattern, targeting the $40 area, which is not exactly a parabolic move, but it’s a start!

Mar 19, 2013
Stewart Thomson
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