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Here's The Reason Gold Is Going Nowhere

By Dan NorciniCommoditiesJun 01, 2015 12:08AM ET
www.investing.com/analysis/gold-%EF%BF%BD%EF%BF%BD%EF%BF%BD-yawn!-253489
Here's The Reason Gold Is Going Nowhere
By Dan Norcini   |  Jun 01, 2015 12:08AM ET
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Another week passes and once again, the word best used to describe the price action in gold is, “YAWN”. As in boring; as in repetitive, as in comatose, as in going nowhere.

Gold Weekly Chart
Gold Weekly Chart

As you can see on the intermediate term chart [weekly], above, the Bollinger® Bands are going nowhere and the bandwidth indicator remains perfectly flat, indicative of a market heading nowhere fast.

Price remains below the median line of the Bollinger Bands, which it has done every week since early February, with the brief exception of a single week early this month [May].

This comes in spite of the wild claims out of the gold cult that once again surfaced – as usual, as can be expected, as is boringly repetitive and predictable – when gold did manage to put in that strong week earlier this month.

“Gold is off to $2000″, we were confidently told. Yep – same claim as always, every single time gold has a big move higher with the same result... NADA… ZERO… ZILCH…

What a great racket – get people to pay you for making wild, outlandish, incorrect and thoroughly useless predictions and then blame it all on “price suppression by the feds” when the prediction falls flat on its face.

Those doing this never have to acknowledge how bumbling and inept they are around the markets while they sucker in another round of victims from whom they can milk more money.

Here is the reason why gold is going nowhere, wild claims of the gold cult hucksters notwithstanding.

Gold COT vs Gold Price 2011-2015
Gold COT vs Gold Price 2011-2015

Look at the total open interest in the gold futures contract at the Comex [futures and options combined]. Which way is that dark line heading? Answer: DOWN.

As a matter of fact, this past week’s reading is the lowest since August 2014, which by the way happened to be the lowest level of recorded open interest in the previous 3+ years shown on this particular chart.

What this tells us is very simple – “INTEREST” in gold (that is why the number of contracts is referred to as OPEN ‘INTEREST’) is drying up. That is also the reason why the large gold ETF, SPDR Gold Shares (ARCA:GLD), continues to report a steady decline in its gold holdings. Just this past week, one gold ETF, simply shut its doors for lack of interest.

I have said it before and will say so again – until the momentum based crowd gets interested in gold, it is going nowhere. Value based buyers may be providing a floor of support near $1180 for now, but they, on their own, cannot drive gold sharply higher.

As long as the threat of a Fed interest rate hike hangs over the market, large speculators will be more interested in selling into rallies in the gold market. While the current rash of weak economic data has bought gold some time—in that it does not have to compete with interest paying Treasuries as long as interest rates remain in the gutter—the market is expecting the Fed to move on the interest rate front sometime this year. That means gold’s days are numbered unless, for some reason, we see inflation pressures come out of nowhere and suddenly surge higher.

Lastly, here is an updated chart of the gold price compared to the U.S. 10-Year Treasury futures contract. The relationship between the two continues to be very tight:

Gold vs 10-Y Treasurys
Gold vs 10-Y Treasurys

Here's The Reason Gold Is Going Nowhere
 

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Here's The Reason Gold Is Going Nowhere

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Comments (3)
Patrick Souther
Patrick Souther Jun 01, 2015 6:15PM ET
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Does anyone remember the well documented visit by CNBC's Bob Pisani to GLD's gold vault? This visit was organized by GLD's management to prove the existence of GLD's gold but the gold bar held up by Mr. Pisani had the serial number ZJ6752 which did not appear on the most recent bar list at that time. It was later discovered that this "GLD" bar was actually owned by ETF Securities.
Patrick Souther
Patrick Souther Jun 01, 2015 6:14PM ET
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I really am not surprised by the lack of interest in GLD specifically. Just read the part in GLD's prospectus where the custodian subcontracts to subcustodians but has no right to audit or visit the subcustodians' vaults. It then requires third-party audits. So we can have the custodian own or pay off the third-party auditor to give a clean audit, while knowing that the subcustodian leases out the gold into the market. If GLD shareholders suspect so and ask custodian to prove otherwise, custodian can simply say "we have no right to check the subcustodians, see the prospectus, but here is a clean audit result" however laughably compromised. If GLD goes bust, no holder of GLD has any claim to any gold. GLD holders simply become unsecured creditors along with all other creditors, with no precedence in bankruptcy court. None of this would matter if GLD gave retail investors the right to redeem for the underlying physical but it doesn't. GLD shares are nothing more than paper.
MCI Trading
MCI Trading Jun 01, 2015 6:14PM ET
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Oh goodness, that is so alarming. I think gold should rocket up to $25K/oz in a hurry!
George Bloom
George Bloom Jun 01, 2015 7:16AM ET
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THIS INTEREST RATE HIKE HAS BEEN USED TO DEATH TO TRY TO BREAK THE PRICE OF GOLD , ALL THE WAY BACK TO NOVEMBER 14. THE HIKE IS A YAWN, AND IS A TIRED REASON FOR GOLD GOING DOWN, IT HAS ALREADY GONE DOWN BECAUSE OF THIS UPCOMING RATE HIKE. I AM NOT SAYING GOLD WILL GO HIGHER, JUST THAT THAT FACT IS IN THE MARKET MANY TIMES OVER. FIND A NEW BEARISH REASON, THE INTEREST RATE HIKE IS TIMEWORN.
 
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