When Will This Gold Nightmare End?

On your left is a chart of the monthly average gold prices dating back to 1995. As of the close of business this past Thursday, the average price of gold during August was $1,205.90. That compares to a 20-month average of $1,271.96 and a 40-month average price of $1255.27. Clearly this is a bearish direction based on these long-term metrics.

This past Wednesday as I watched the price of gold continue to get slammed lower, I asked Andrew Maguire, my guest on my show last week, “When will this end?” Andrew reiterated what he had said on my show, namely, that the Chinese were slamming the gold price lower in the future market to access cheap physical. Here is how Andrew responded to me: Jay thanks, just as we discussed yesterday, synthetic supply and China vacuuming up supply into a 1/1 tit for tat devaluing Yuan. Commercials are hedging this exposure while specs take the load. I see this as over by Friday and season front running will take over.

That leads me to the chart on your left, showing 24-hour cash gold price over the past three days. The green line represents the price on Friday, August 17. It may be wishful thinking on my part, but perhaps gold’s strength during the last couple of hours on Fri., Aug. 17 is verifying Andrew’s view that the plunge for gold is over. 

This past Wednesday, Aug. 15, I sent Michael Oliver an email, asking him when in the world this decline in gold will end. He responded shortly thereafter with the substance of an email he sent to a client earlier in the day. With his permission to include it here, this is how Michael responded to the question about when the decline in gold will end and in fact how gold fits into the rest of various markets that seem about to shift in a major way:

First I want to see gold hold above last month’s oscillator low (of July, based on 3-mo. avg. momentum) and hold weekly from taking out July low on weekly momentum (3-wk. avg. osc.). Last two times I did this process of drawing line in sand during the past two years, gold halted without triggering those numbers. In this case both are into 1170s and market now nearing. If seen, MSA will “go to neutral” because my long-term assessment of macro-technicals still does not justify being short at that point and therefore we will offset (not reverse) our buy signal of Feb. 2016 at just above $1140. But note if you will that oil and copper are collapsing (not edging down over 8 months, like gold), but far more rapid. Meanwhile commodities that did not have upmove in 2016-2018 like natural gas are still at price levels that cause quarterly momentum to turn up.

Also look at stocks—developed—and measure how far off high of year the Nikkei and DAX are (and might be in next few weeks if don’t halt right now).

This is not just a gold thing, but an across-the-board thing and likely to involve the U.S. stocks as well if they don’t watch their toes.

If so, then will that abrupt and rude shaking of those assets that central banks do usually act to protect put them back into “defense” mode in terms of monetary policy, etc.?

And even if gold does tickle out my numbers in the 1170s (meaning it will have dropped 13% from its early year highs—compare to oil’s and copper’s and Nikkei’s and DAX’s drop from yearly highs and you’ll see gold is not some isolated situation), MSA will still be monitoring monthly momentum in particular for signal of upturn again.

My sense is that this decline by gold is part of a larger tide that will shake up many things, and if so the process could at some rapid point put gold back into positive role again with speed. That’s why we will be constantly watching monthly momentum for a reversal sign, even if gold tags the go to neutral numbers.

I do not buy into the old parallel of the 2008 collapse in which all categories (stocks and commodities) got hit. Commodities took massive and protracted hit from 2011 to 2016, and while copper and oil in particular deserve a sharp drop due to excessively strong move in 2016-2018, commodities as a whole, including gold, are in different relative position to stocks, having already paid massive downside dues in 2011-2016. I still look for the rattling of stocks and confidence therein to benefit commodities like gold and those that have yet to have their upturn (foods, uranium, natural gas, to name a few). – Michael

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.