Gold is up 25% in Dollar terms Year to Date in 2016
Gold miners have benefited enormously by this surge. Here's Gold miners ETF
Has the Big Picture changed?
Gold was in a deep downtrend in 2015.
With this bounce - Gold now has become Buy Low Sell High Candidate. Sell High means Avoid Buying at higher price too. Look at how Chinese Central Bank has cut down on Gold purchases this year. It did not buy at all in May 2016.
Central Banks also chase trends. From 1989, central banks were net sellers of Gold for 19 straight years. They jumped on the Gold mania post-2005 and purchased like crazy till 2012. With prices in downtrend now, Central Banks have been cutting down on Gold purchases sharply for now 3 consecutive quarters.
What's the Road ahead?
Gold is now Buy Low Sell High Candidate under current circumstances but going ahead Gold prices will follow US economic data. If the economy strengthens, then Gold will find it hard to rally. Also Gold has arrested downside too. There are huge structural problems in advanced economies and economy cannot run at full speed for long and hence Gold will see buying at lower levels. Also, Gold is a hedge against central banks’ quantitative easing programs
Deutsche Bank has put out a note stating that fair value of Gold is $1700...but the reality is Gold trading at $1330 right now. Gold will bounce between $1050 and $1440 for long time.
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers