Pretiorates' Thoughts 42 - Gold did exactly what was expected of it

Published on August 8th, 2024

In our analyses, we regularly examine current movements, identify possible influencing factors and assess the general market situation. However, these are not recommendations, but merely opinions and food for thought.

Hello dear readers!

Many investors feel that investing in Gold and Silver is a safe haven. However, just as many investors buy it as a hedge. That is not the same thing.

This is not the first time that the two precious metals have lost just as much ground during the stock market slump. This behavior has been observed in almost every market slump over the last 25 years. Investors who only bought Gold as a risk hedge sell it to provide liquidity for potential margin calls on their equity investments. Silver usually falls more sharply because a potential economic downturn could dampen demand for the industrial metal.

However, as soon as the storm has subsided, investors buy back their Gold holdings in particular, which also benefits Silver. This is why Gold and Silver have risen sharply after almost every market slump in the last 25 years. What does it look like now?

The influence of Chinese investors has increased massively in recent years. Smart Investors Action shows that investors in the Far East have recently reacted rather defensively.

Optimism has practically evaporated. A sustained uptrend is hardly to be expected without an improvement in sentiment among Chinese investors...

A similar mood is also evident among western investors. A clear trend cannot be identified in the Smart Investors Action. The lack of drive is likely to contribute to a continuation of the consolidation for the time being, in addition to individual days with ups and downs...

Nevertheless, a recovery is possible in the short term...

The situation is similar for Silver. No clear tendency on the part of investors, who are usually responsible for the basic trend...

Optimists and pessimists currently balance each other out...

The after-open action suggests that at least a recovery is possible over the next few days...

The spread between the Chinese and western Gold markets remains small. This confirms that we are currently not receiving any bullish support from Chinese investors...

The Silver spread, on the other hand, remains in the 15% range. This is basically bullish...

But we can also see that the Shanghai Stock Exchange's holdings have recently increased again. Physical deliveries, on which the Silver bull is dependent, may therefore have decreased recently...

Incidentally, Comex Silver stocks have also increased (slightly) since the beginning of the year...

Chinese investors have also stopped increasing their investments in Gold ETFs. This also confirms that they are currently holding back...

Global interest in Gold ETFs, on the other hand, has finally increased in recent weeks, albeit only very cautiously...

The selling of Silver ETFs worldwide, which has been ongoing for three years, also seems to have come to a halt. However, the new purchases of the last few days are of a more cautious nature...

The number of current futures contracts on the Comex rose massively until May 2024. This indicates a high number of speculative investments. An important prerequisite for a new Silver uptrend is a sharp decline in these investments - which has recently been the case...

Conclusion: It has often been observed in the past that the Gold price has come under selling pressure along with the stock markets. However, the fact that the Gold price has (so far) not suffered more can be interpreted as a sign of strength. In the case of Silver, the speculative level was previously higher and the economic outlook has recently deteriorated. There is potential for recovery, but a real trigger is needed...

Since the beginning of July, the trend among Gold companies has been downward again...

However, the after-open action has already fallen more sharply, so a recovery should be possible. Confirmation comes from the most important Gold mining indices. From the Arca Gold Miners Index...

The correction in the XAU Index is already more advanced...

And the HUI Index also seems to have reached a level at which stronger buying interest should arise again...

The ratios between the Gold miner index HUI and the Oil price as well as the HUI index and physical Gold show that Gold companies need a falling oil price (lower production costs!) in order to keep up with the performance of physical Gold. Somehow logical during inflationary times...

That’s it for today!

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We wish you successful investments!

Pretiorates

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