Gold means security
Gold is and remains a mystery. The gold price is actually strange given the global circumstances. Gold means security and if you look at the fundamental framework conditions, the indebtedness of the global economy should be a constant driver of the gold price. Is it any wonder that rumors keep popping up that central banks are manipulating gold prices to protect their own currency?
The problems of the financial crisis have never been solved
Since the 2007 financial crisis / In 2008 the financial markets changed fundamentally. And not for the better. Correspondingly, the gold price rose during the financial crisis. The summit was formed in September 2011. Subsequently, a consolidation phase continued for many years, which continues today. It is noteworthy that the cause of the sharp rise in prices at the time never subsided. One could even say that the fundamental framework conditions have become even more radicalized. Government debt in all major economies has increased significantly in a relatively short period of time. Debt is being fought with even more debt.
Globally, there was a mountain of debt of $ 150 trillion in 2008 Dollar. Since then, this mountain has expanded to approximately $ 250 trillion. Who wants to pay interest later on? Probably nobody. Although the Americans are discussing rate hikes, it should be clear from the mountain of debt that the scope for rate hikes is very limited.
The zero interest rate terror will not stop
After the debt crisis began, the central banks were forced to raise interest rates irresponsibly to lower deeply. The path of zero interest rate policy was the only answer to the insolvency of indebted countries. The logic would have worked if debt relief had been made in recent years. In this case, the current mountain of debt would be smaller and the central banks would have more room for maneuver.
The central banks are now trying to get a little more room for maneuver with their smallest rate hikes, but with the mountain of debt it becomes obvious that it is only lazy magic goes. Some economists have made calculations to describe the conditions for sovereign default. Government bonds with a term of ten years were used as a benchmark.
Germany would be on the verge of bankruptcy at an interest rate between 6-7%. Spain and Italy could get into serious difficulties at 3-4%. It is even more dramatic in Japan. There, a 1% interest rate would already lead to insolvency.
If properties lose value, there is a chain reaction
The financial crisis of 2007/2008 sparked off with the increased debt of property owners in the USA. Fed leader Alan Greenspan was pushing rate hikes to prevent the US economy from overheating. He accepted that some property owners could no longer make their interest payments. However, Greenspan underestimates the number of insolvent people. At that time, the US Federal Reserve lacked the foresight that the bad real estate loans had even been sold worldwide.
Where are the demonstrations against German expropriation?
The current financial situation is not the same as the crisis at the time unlike. The only difference is the amount of debt. It is significantly higher and therefore more explosive than back then.
The consequences can be guessed at. The likelihood is pretty high that there must be currency reform in the next 10 to 20 years. The term currency reform sounds far too harmless, then it is a hard haircut. A lot of people, especially in Germany, will lose money because they have to stick. Behind it are "strange abbreviations" such as ESM, ESF or target system. Abbreviations that no German is interested in because nobody understands them. Or why hardly anyone demonstrates against expropriation?
The EU lives with a financial system that cannot work. Every aspiring economist in the third semester can confirm this. Nevertheless, the politicians insist on "keep it up". You could compare it to the former GDR. She survived for 40 years with firm but wrong beliefs. The economically faulty financial system is maintained with political pressure. And until it no longer works.
This brings us back to gold. No matter which financial tricks are used, gold is and remains a stable value.
Image: Daily chart of the gold price in US dollars
Technical starting situation of the gold price
There is important support in the $ 1310 and $0 range. It should be able to bring the price back into a bullish reversal. Overall, the market moves in a sideways range and oscillates between the strongest support and the strongest resistance. The starting situation can only change if the market changes into a trend. An important question is therefore: Can it be that the gold price falls so far and the support breaks through sustainably? Anything is theoretically possible, but it probably isn't. In order for the gold price to move into a trend, the fundamental framework conditions must justify the trend movement.
These conditions are described in the upper part of the article, and they rather indicate that the gold price could make an upward jump if the opportunity arises, So if there was a trend, it should be upward.
How do gold producers' stocks behave?
When gold prices rise, gold-mining companies always benefit. Your profits multiply with rising gold prices. There is a larger ETF that only contains gold mining companies. (Market Vectors Gold Miners with symbol GDX).
As a speculator, it makes sense to be positioned before the large crowd. A comparison of the gold price with the gold mine ETF could provide a clue.
Image: Weekly chart of the gold mine ETF (GDX)
Gold and gold mine shares are similar
In principle, the gold mine ETF should show a similar price trend as the gold price. and thats the way it is. There is a small difference with the on-balance volume (OBV). The OBV represents the course of the trading volume. In the upper chart, the OBV is shown as an indicator next to the course of the price. This makes it easier to compare price and volume. We can see that the OBV is slightly upward while making a conspicuously jagged move.
Any sideways move can be seen as a consolidation phase. If the OBV indicator tends upwards in comparison, one can assume that larger investors have entered the gold mining stocks. They presumably assume a later increase in the value of gold. Large investors are trying to position themselves so that they can fully participate in a bullish gold price breakout. The slight increase in OBV shows that an average buy order generated more trading volume than when selling.
However, a question mark remains in the OBV history. In order to read the strength of the bullish tendency from the OBV trend, the OBV rise must have been generated by long-term investors. Only this group of investors has the necessary nerves to withstand short-term fluctuations. However, if the OBV surge was caused by short to medium-term investors, we should assume that the stock marketers will lose their nerve from an unknown point in time. If there is no bullish breakout, you will reject your position. Short and medium-term traders do not invest, but want to realize price gains as quickly as possible. If short-term and medium-term stock marketers were positioned in the market, the OBV trend would correct itself again and optically approach the price trend. But even in this situation, a downward trend would not be likely - precisely because only long-term investors can establish a stable trend.
Image: Weekly chart of the gold price in US dollars with price targets
The most important price mark in the gold chart is 1360 US $. There is a powerful resistance there. If the price were to overcome resistance, there would have to be a dynamic movement. In fact, all market participants with short positions would probably "sweat" and close their positions with further buy orders (short squeeze).
The target price is plotted at $ 1,500. This target price can be set as the minimum target. Depending on the dynamic above the resistance of $ 1360, you can also correct the price target again. A price of $ 1800 would also be fundamentally justified.
Prices below $ 1150 end the idea of a bullish trend movement.
Quotes on trading
Price target: $ 1500
Price target: $ 1800
Interim target: $ 1395
Stop loss: $ 1150
Stop loss: The stop loss is initially set as an initial stop and has the function of a maximum loss limitation.
Price target: The price target is the exit point for the forecast market movement.
Interim target: When the intermediate goal is reached, the position is in profit. At this point we take a partial profit and we sell 50% of our position. At the same time, the stop loss is adjusted to the personal entry price. This enables us to close our position without loss, even if the market later turns against us.