01:17 GMT28 October 2020
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    Despite great fundamentals gold has done nothing and continues to trend lower. However, from a long-term perspective, buying gold bullion could make for a great investment; central bankers in Russia and China are stocking up on this metal.

    Hasten slowly and ye shall soon arrive. Milarepa

    In August, we came out and openly stated in an article titled the gold bull is dead that it was not the time to buy gold. At that time, many analysts were calling for a bottom and much higher prices.  We stated that there was a high probability that gold would move lower before bottoming out. Fast forward and that outlook has come to pass.

    So let’s see what picture the fundamentals paint.

    Demand for gold is soaring according to the World gold council’s latest report.

    The latest report shows that overall worldwide demand for gold soared by a whopping 33%.

    Americans are jumping into the foray also; US retail demand for gold soared to 32.7 metric tons, 200% more than the same period last year.

    The report also states that gold demand in China surged to by 70% to 52 metric tons. 

    Europeans also appear to be loading up on gold.  Demand increased by 35% to 61 metric tons.

    So what gives; why are gold prices not soaring?

    Based on fundamentals, the dollar should have crashed long ago, as the US Fed has created more money in just the last ten years than it has over past 100 years.  Fundamentals would have had you jumping into energy and oil stocks just when they tanked. Up until the very moment oil crashed, all the experts were screaming about a shortage of oil and surging demand in Asia. Overall demand in Asia continues to rise, but the same individuals are now singing a different song. Instead of less oil, they are now singing the oversupply song; oh how fast they jump ship. 

    The following charts illustrate that gold demand is increasing, so what gives?

    The chart from the World Gold Council clearly indicates that demand for this precious metal is rising.   

    Year-on-year changes in gold demand
    © Photo : Tactical Investor
    Year-on-year changes in gold demand
    Central bankers are busy loading up on the metal. The main buyers are Russia and China.  Perhaps they are privy to information that the general public is not? Whatever the reason, central bankers appear to be aggressively stocking up on gold.   

    India has joined the bandwagon; Indians are buying a lot of gold again.

    Consumer demand for gold in India
    © Photo : Gold.org
    Consumer demand for gold in India
    Why oh why when all the fundamentals look good, does gold continue to drop like a rock.

    Fundamentals do not drive the market; they just provide you with a picture to somewhat justify your biased views. What drives the market is emotions, and some technical indicators have the ability to pick up on these emotional changes.  Crowd psychology is probably one of the best and least utilized tools when it comes to spotting topping and bottoming action. We are not talking about timing the exact top or the exact bottom. This endeavor is best left to fools who have nothing better to do with their precious time. Right now a lot of people are embracing gold, but the crowd is still silent. When the crowd joins the pack, then the situation will move from quiet to explosive.

    The technical picture is indicating that a real bottom could be close at hand. In August, in an article titled “The gold bull is dead”,  we stated the following:  

    From the technical analysis perspective, gold has one more leg down, but the last leg might or might not be too steep. Every bull market undergoes a back-breaking correction, and gold is no exception.

    What’s next for gold?

    So far most of this has come to pass. Our trend indicator is not bullish yet, so until it turns bullish, gold will not mount a significant rally. The gold camp is in disarray and despair is beginning to set in; this is the ideal time for a bottom to take hold. When gold topped back in 2011, the gold camp was jubilant and could only envision higher prices. Gold is not on the verge of a breakout yet, but it could be on the point of putting in a bottom, and that would be a move in the right direction. To indicate that a bottom is in place, gold cannot close below 1,050 on a weekly basis; failure to hold above this level should lead to a test of the 1,000 ranges, with a possible overshoot to $950. 

    Finally, if you are a gold bug, and you adored gold at $1,800, then you should be delighted that it is trading below $1,100.  If you have time, patience and extra money, or you bought gold in the $300-$500 ranges and closed your position in the $1,650-$1,800 ranges, then deploying some money into gold bullion might not be such a bad idea. We would, however, hold off from buying gold shares for now.

    A good idea plus capable men cannot fail; it is better than money in the bank. John Berry

    This article is provided courtesy of the Tactical Investor, where mass psychology and technical analysis intersect seamlessly 

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