On Sunday (Nov. 30), the Swiss voted overwhelmingly to reject a referendum that would have required the Swiss National Bank to (a) keep 20% of its reserves in gold bullion and (b) repatriate Swiss gold now stored in Canada and the UK and keep it under Swiss control.
Gold bugs everywhere were bitterly disappointed at the result because the two requirements would almost certainly have driven the price of gold back to the highs around $1923 an ounce reached in September of 2011.
Instead, gold is headed for the bottom again. It dropped another $40 Sunday night after the Swiss results were announced before making a very modest bounce, and it has now broken through the long-term support around $1180 – support that has been solid for 18 months.(See chart below.).
Technical analysts are talking in hushed tones about the next major support: $1,000 an ounce, a price that was last seen in September, 2009.
We Disagree
We disagree. In the near term, we think the current dive is an over-reaction, aided by the usual price manipulation that characterizes the gold market.
We see gold futures possibly trading around $1130 this week or next, and probably sliding a little further from that point. But in our view, the market is making lower lows that are part of the process of establishing a reliable bottom for a new rally.
We are short-term bears, but middle- and long-term bulls. It may go down first, but we’re pretty sure it turns back up later.
- Our first buy level is $1132.50-34.50.
- Our second buy level is 1118.50 – 20.50
Crude and Copper
Something that merits closer attention are the sharp declines affecting a broad range of commodities, notably oil, copper, and silver. Crude and copper in particular are the foundations of industrial economies. When they fall in price, other economic indicators are likely to follow.
Falling prices are always welcome; everybody loves to pay less. But these sharp, explosive declines are worrisome. They suggest the global economy is slowing down, sharply and quickly, and that is definitely not good news.
Chart: Gold futures, weekly bars. Nov. 28, 2014
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