The answer to many questions often depends upon perspective, whether the questions are; should I buy silver, is the S&P 500 expensive, is huge and unpayable debt a problem, is another World War a bad idea, will eating potato chips and candy bars actually damage my health, and are Republicrats as useless and corrupt as they appear?

Many people have suggested that silver prices are hopeless and silver will never go up. This is an overly emotional perspective caused by 4.5 years of declining silver prices and negative sentiment. Consistent with this “hopeless” assessment are:

If silver prices ever get back to $20, or $30 or $40, I’ll sell and never put money into silver again.
I bought silver at $30 and now it is near $14 and I have lost money and feel stupid, especially as the S&P has gone up nicely in that time.
Silver bulls have been saying buy buy buy since whenever and they have been wrong wrong wrong.
I’m mad as hell and I can’t take it anymore. I’m selling out, taking my losses, and buying stocks.
Examining the above issues from a different perspective might produce the following responses:

If silver ever gets back to $30 I’ll sell. Why? What were your original objectives? Did you buy for short term profit or long term insurance against the massive debt increases and currency devaluations that our politicians and bankers have created and will continue to promote? If you bought for long term insurance your question should revolve around buying more, not selling your insurance.
You bought at $30 and it is now $14. Warren Buffet might suggest that if it was a good investment at $30, it is a much better investment at $14 and if you think it is a good value, you should buy more, not sell.
Silver bulls and bears, stock bulls, real estate sales people, and politicians all talk their book. At times they are right, other times wrong. Silver goes up and down, stocks go up and down, and real estate goes up and down. But debt always INCREASES and unbacked fiat currencies always DECREASE in value.
You are mad as hell and ready to sell out and take your losses. Fine! Do what you want to do.
SO WHAT?

Markets are frustrating unless you possess insider information, unlimited free currency backing, or can change the rules to suit your needs. The casino is partially rigged and favors the political and financial elite. You can successfully trade paper COMEX silver contracts, ETFs, stocks and bonds, but you are “swimming upstream” against sophisticated “algos,” computers, and professionals.

Those paper contracts, stocks, ETFs and bonds hide risk related to the value of the currency and confidence in the paper. Example: Who wants to be a billionaire in Zimbabwe dollars? Who wants to own a million shares of Enron stock? Who wants to own a 30 year bond from a bankrupt country that can’t pay its debts this quarter and may not exist in 30 years?

Enron stock may drop to zero, nobody wants Zimbabwe dollars and Confederate money will never rise again, but we NEED silver since it will always be valuable and is necessary for modern life. In addition we NEED silver because it hedges against currency devaluation, uncontrolled spending, massive debt, and loss of confidence in the currency, politicians, and economy.

From this perspective we don’t understand why people would sell their silver insurance at these prices given that:

Politicians will spend and borrow to excess and eventually drive the value of their unbacked paper currencies down to nearly zero. History confirms this. The only questions are when and how rapidly. We NEED protection from devaluation.
Debt (official debt, not including off balance sheet liabilities and unfunded liabilities such as Social Security and Medicare) has increased in the US from about $398 billion in 1971 to over $18,600 billion in late 2015. That debt can never be repaid in current dollars, which strongly suggests that the dollar must be devalued and consumer prices for the goods and services we NEED must rise. Silver prices will rise because we NEED silver products, supply is growing slowly and industrial and investor demand are growing more rapidly.
COMEX paper silver prices have dropped for over four years, but we don’t NEED paper silver. When prices for physical silver align with physical supply and demand, and not paper prices, the price of silver will make more sense.
War and military actions are increasingly common, costly and becoming worse. Example: A single helmet for an F-35 pilot was recently described in the media as costing $400,000. The forever war on terror will get more expensive and create immensely more debt. The military NEEDS silver for equipment and bombs, and we NEED silver to protect from the inevitable currency devaluation.
The powers-that-be may deem another World War necessary in order to justify massive bond monetization, deficit spending, economic stimulus, and to distract the masses from economic recession. Those expensive wars will devalue currencies and increase consumer prices for the goods, services, and silver we NEED.
N-silver

WHEN?

The COMEX paper price of silver will rise when the major players are positioned to profit from a rising price. That probably will be soon, but asking when will it rise is the wrong question.

If you are buying silver to protect from fiscal and monetary insanity, then “when” matters very little. Fiscal and monetary insanity are not improving anytime soon and a thousand years of history suggest that all unbacked paper fiat currencies eventually descend to their intrinsic value (zero), debt always increases, wars will persist and become more expensive, and prices for the goods and services we NEED will continue to rise.

From this perspective, we NEED silver for economic survival. We don’t NEED paper silver contracts, paper stocks, paper currencies, and paper promises.

We NEED silver, or … you can place your trust in Hope and Change.

From John Hussman:

“Cutting immediately to the chase, we continue to believe that the U.S. equity market is in a late-stage top formation of the third speculative bubble in 15 years. On the basis of measures best correlated with actual subsequent S&P 500 total returns across history, equity valuations remain obscene. We fully expect a loss in the S&P 500 in the range of 40-55% over the completion of this cycle; an outcome that would be wholly run-of-the-mill given present market conditions, and would not even bring reliable measures of valuation materially below their longer-term historical norms.”

From Egon von Greyerz:

“But just like the paper money printing will fail so will the creation of paper gold. It makes absolutely no sense that unlimited supply of paper gold should have any value. I don’t believe that we are far from the point when the paper gold holders will realize that the intrinsic value of their paper is ZERO.

The geopolitical situation in the world is also looking very grim. Sadly the war industry is likely to prosper greatly in coming years.

And investors in the bubble assets of stocks, bonds and property will see a wealth destruction that they could never have imagined whilst holders of physical gold and silver (held outside the banking system) will maintain their purchasing power and preserve wealth.”

From David Stockman:

“…the gates of hell have been opened by Washington’s senseless destruction of regimes in Libya, Syria, Iraq, Yemen, Somalia, Afghanistan and elsewhere that refused to do its bidding. Yet not one of these backwaters of tyranny and economic and military insignificance posed any threat whatsoever to the safety and security of American citizens in Lincoln NE or Manchester NH.” [Expect more military spending and debt to fight the denizens who have escaped from the gates of hell…]

Paper Dies, Silver Thrives!

Gary Christenson

Every once in a while, we reiterate the importance of knowing the trend, in fact, calling the trend the number one piece of information. From it, everything else follows, in terms of knowing in which direction to base trade decisions.

2014 and 2015 were viewed as turnaround years for gold and silver, with expectations that price would rally to new, never before seen prices. In a little over a month, 2015 ends and 2016 begins right after. It is possible that 2016 may bring more of the same: disappointing expectations for PMs performance. It is just a possibility, for no one knows for certain how the future will unfold. What we do know for certain is that in order for PMs to rally, they must first stop going down.

We have been telling readers to avoid the long side in futures for the past few years. We are also on record for advocating the purchase of physical gold and silver at any price, and all purchases made in the past few years are likely in the red. While true, that is not the issue in owning the physical for the reasoning is totally different. Physical ownership is more a form of insurance against the failure of the fiat Federal Reserve Note, aka the “dollar.”

Reference was made to holding physical gold and silver as a form of wealth preservation. Some, perhaps even many may think their wealth is not being preserved very well for those purchases made since the PM peak, 5 years ago. This is true, in absolute terms when using a fiat currency as one’s measure. It is a testament to the ability of the globalists to keep a price lid on both gold sand silver, mainly through the US central bankers. Few believed the financial Ponzi scheme could be stretched as much as it has.

What we all have learned is to realize the importance of a fiat trend, as well as a market trend. When the fiat trend ends, the doors may close for the ability of one to buy more physical gold and silver, and the purchases made, even currently showing a loss in value, will be a saving grace after a temporary price disadvantage. Do not be discouraged and continue to buy more as one can.

All fiats fail, and the only difference this time around is the grossly exaggerated extent to which fiat has managed to survive. It also indicates that once the fiat “dollar” fails, and there are more and more cracks showing up in its ability to maintain its world reserve currency status, the move for physical gold and silver will also be favorably exaggerated to the upside.

The fiat “dollar” chart does not show any ending action to the upside. The last two TDs [Trading Days], were narrow ranges: buyers were unable to extend higher, but at the same time, sellers were unable to take advantage so buyers continue to prevail and price should eventually carry higher. The only thing that can alter this assessment is if sellers suddenly show up in force. They have not yet, so mention is made only to recognize the possibility.

dollar_weekly_20nov15

The only purpose for including the weekly copper chart is to show how once a trend is established, it carries the prevalent momentum until the opposing force[s] become strong enough to effect a change. If that does not happen, you can see price will keep falling, more than most expected, and will continue to fall until it uncovers demand. Unless demand shows up soon, $2 copper is possible for as long as the trend remains down.

COPPER-WEEKLY_20nov15

Gold’s decline is more controlled, no pun intended, as the lower lows do not go as deep as prior swing lows, which means the downside is just slowly giving way, but still going lower. This remains a function of price seeking demand, and until it shows up, just like in copper, price will continue to make lower lows.

The first two of the last four TDs were sharp declines, the last two on much smaller bars but volume increased. This would be an indication that buyers were more than able to match the increased selling effort sufficiently to prevent price from extending lower. More than likely the buying is short-covering and not new buyers. If true and the next rally is weak, without new buying for support, price will decline still more.

Because we know the trend is down, there is no guesswork about trading from the long side in paper gold. There is no need to “predict” the price direction. Just wait for more information that buyers are beginning to increase [which they are not, so far], and then have a strategy for buying in a changing up trend. Presently, there is no evidence of a change to an up trend, so wait for confirmation and keep one’s powder dry.

gold_weekly_20nov15

The EDM reflects how buyers cannot control selling. While price started to trade almost sideways, near the current lows, you can see, relative to the $120 decline from the last swing high, there has been no ability to mount a counter-rally, and that is a sign of weakness.

Any change always shows up first on the smaller time frames. Yet, even the intra day 60 minute chart shows no sign of ending the current decline. Read all you want about the bullish fundamental climate for gold and silver, the reality is market participants are ignoring the current news and dealing with where price is and is headed. This is why charts are always more reflective of what is going on, at all times.

gold_daily_20nov15

Just like there was no ability to rally from the lows in daily gold, weekly silver is in a similar position. Last week’s tiny range is hard to read: price could neither rally nor decline, a stalemate. The trend is down, and the onus for change is with the buyers.
Until buyers make their presence known, expect more of the same.

silver_weekly_20nov15

The rally in early October was on wider range bars and sharply increased volume. It shows where buyers stepped in and made a difference. Typically, buyers will defend those prices, anywhere from the top of the first wide range bar to the bottom of it. That potential support was totally ignored as price declined over the last several TDs, and that says weakness.

Relative to the decline that started in late October, at a bull trap failed probe higher, once at the bottom of the current decline, there has been no ability to counter-rally. All of these observations are nothing more than reading developing market activity. They are simple and factual messages the market is conveying. These messages clear the fog formed from sentimental beliefs.

Jettison the beliefs and stay with what the market says. Trading life becomes easier.

A sudden boom in illegal gold mining in Colombia is fuelling human trafficking and forced labour in and around mines loosely connected to paramilitary groups, drug traffickers and leftist guerrillas, according to Aljazeera.

In an in-depth report, the news outlet reveals that small-scale miners are being forced out at gunpoint or extorted to work for the armed groups that are taking over their operations.

Residents are caught in the crossfire. About 200,000 Colombians were driven from their homes in 2013, the latest year for which data is available, according to Consultoría para los Derechos Humanos y el Desplazamiento, a Colombia-based human-rights group.

The government estimates that about 80% of all the gold produced in Colombia comes from informal operations, many considered illegal, which is creating a parallel economy that is deemed to harm the business of those who operate legally.

The sector is estimated to bring in in approximately $2.5 billion a year and has now eclipsed cocaine trafficking as the main driver of violence and a source of dirty money.

READ ALSO: How illegal mining became Latin America’s new cocaine
The main difference, reports Aljazeera, is that while cocaine is delivered from supplier to consumer through underground routes, “illegal gold travels with legal documents via airfreight”:

Goldex, once the country’s second largest gold exporter, stands accused of laundering hundreds of millions in criminal profits and exporting illegal gold from conflict zones in Colombia to the United States
Until recently, Colombian authorities had barely investigated the commercial alchemy used to turn illegal gold into legal pesos, but now prosecutors are bringing their first major case of money laundering to trial. Goldex, once the country’s second largest gold exporter, stands accused of laundering hundreds of millions in criminal profits and exporting illegal gold from conflict zones in Colombia to the United States, most of it to two American companies: Republic Metals Corp. and Metalor Technologies USA.

In late July, Colombia’s President Juan Manuel Santos unveiled a new plan to combat the problem. Among the fresh measures, Santos granted the Defense Ministry more powers to fight the country’s leftist rebel forces and criminal neo-paramilitary gangs, which are reportedly the ones behind the surge of illegal miners in the country.

Additionally, Santos announced a new bill to be drafted in the coming days that will increase the penalties against the criminal activity.

Colombia has also began a formalization process, which implies helping unlicensed miners “come clean” by paying taxes and filing environmental impact statements, while the government guarantees training and safety.

Despite the government’s aims to formalize all miners by 2032, a recent investigative report financed with a grant from NACLA’s Samuel Chavkin Investigative Journalism Fund, shows that so far the program has been marked by extremely slow progress, chaos, and inconsistencies.

In Trinity of Truth, my last article, I showed how under our current system it is impossible to simply ‘print money’; rather (Fiat) currency must be borrowed into existence. This leads to the conclusion that it is impossible under our system to inflate away debt by printing; every new unit of currency printed must be balanced by a matching unit of new debt, else the books of the bank of issue (Central Bank) will not balance.

The CB indeed creates new currency out of ‘thin air’… but only against an offsetting asset. Normally, the asset is a treasury bond; the treasury borrows, and the CB prints against the treasury borrowing. This is called monetization when the CB does it; it is called check kiting if anyone else does it. Sovereign debt and currency supply grow hand in hand.

Some people suggest we change the system so government can simply print currency, without borrowing, without involving a CB. At first sight, this seems like a good idea; after all, why not eliminate the middle man, why create debt along with ‘desperately needed’ new currency? The answer is threefold, and as always involves The Whole Truth.

First, history clearly shows that printing without borrowing has been tried, over and over again, with inevitably disastrous results. Ancient China ran on a Silver standard. The Chinese government, the emperor, ran short of funds… like all governments everywhere… and the Chinese Emperor decided to issue paper ‘chits’ and decree that these chits were money, money as good as Silver. The Emperor had power to enforce this policy… at the point of a spear… and soon paper chits flooded China.

The chits started to depreciate as soon as they were issued. The holders of the chits, the people, were impoverished… and impoverishment led to bloody revolution and overthrow of the emperor’s dynasty. This scenario happened so often that the Chinese wrote laws outlawing paper currency. Nevertheless, Chinese dynasties continued to print ‘money’… without borrowing… and dynasties continued to collapse.

When Marco Polo completed his famous journey, he brought back Chinese gifts… among other things, paper money. Western kings and the Pope were so shocked by the idea of using paper as money, they decided this must be the work of the Devil… and burned the paper. Nevertheless, in a few hundred years, Western powers embraced paper… but in a different form.

In Middle Age Europe, unlike China, there was no emperor with the power to enforce paper money; too many small, scattered kingdoms, each with a broke and greedy king in charge. Power belonged to holders of money; today we call them banksters. European kings who needed more money had no choice but to borrow from the money lenders… and as always, there were strings attached. Above and beyond interest payments, European kings had to grant a monopoly to the banksters… a monopoly to create and issue paper currency. As the bankster says; “I care not who writes the laws of the land as long as I control the currency.”

We don’t have to go back to ancient China to see the history of printing without borrowing. We can see the results in John Law’s work for Louis XIV; the French king was bankrupt, along with the French economy. Law persuaded the king to print ‘money’ in the form of paper Assignats, ‘backed’ by the value of confiscated church lands. The printing soon led to John Law running out of Paris disguised as a woman, and to the French revolution. Napoleon Bonaparte’s first act as Emperor was to restore Gold money to France. For a while, Bonaparte was considered a hero… at least in France.

Another example of money creation without borrowing played out in the early twentieth century. Post WWI Germany was hamstrung economically by the Treaty of Versailles; and squeezed mercilessly by reparation payments. Reparation payments had to be made in terms of Real Money… Gold. The banksters were willing to lend Fiat currency to Germany… but only on onerous terms. Hitler chose not to borrow, but to print without borrowing. He chose the Chinese way. Indeed, at first his policy was wonderfully effective; the shortage of cash and credit were relieved, and Germany experienced a wondrous economic recovery. For a while, Hitler was considered a hero… at least in Germany.

Mind you, the banksters were not pleased. Indeed, the international banksters… Rothschild et al… declared war on Germany on March 24, 1933. See the New York Times, March 24, 1933 issue. Military action began later, but this was the bankster declaration of war; dare to defy the banksters… and you pay the price. This scenario is still in play today. Any nation or leader who dares to defy the Petro Dollar is invaded… this is called regime change.

We have two large countries defying the banksters; China and Russia. China has a lot of debt… but it uses the borrowed funds wisely, to build real economic strength, in manufacturing and infrastructure. Chinese debt is primarily US treasuries; the debt is being reduced rapidly… and in the meantime serves as a means of keeping Uncle Sam out of Chinese affairs. If Uncle pushes too hard, the Chinese have the choice to liquidate their US Tbonds and thus destroy the USD suddenly instead of letting it self-destruct gradually. China is also buying Gold at both the CB and the citizen levels; in China, fraudulent banksters are executed. In China, power rules money.

Russians have little or no international debt; they are also buying Gold steadily. Washington is desperate to achieve regime change in Russia; but with the popularity and smarts of the current Russian boss, Mr. Putin, Washington’s plans do not seem likely to succeed. Washington is simply pushing Russia and China into closer collaboration… along with the Brics nations. Washington is self-destructing along with the Dollar.

History does not show promise in the idea of printing without borrowing. We see what happened, but it’s nice to understand why and how printing fails. Many people claim that this is simply ‘Human Nature’… that power corrupts, that absolute power corrupts absolutely, that greed rules, and so on. Out of control printing is simply part of Human nature. While it is true that murderous greed is endemic to at least some humans; we call these people psychopaths… it is important to understand the mechanism as well as the motive. We need to grasp the whole truth.

Second, real money is never just a promise… this is the bottom line in the failure of Fiat. All Fiat currency, whether borrowed or printed into existence, is but a promise. Real money, Gold and Silver, carry their own value. Gold and Silver are valuable in themselves; dug out of the Earth with much sweat and at high cost… cherished, worn as bodily adornment… unlike paper with a bit of ink sprinkled on it. Not much demand for paper jewelry, is there?

In the early days of paper currency, bank notes… like Dollar bills… were redeemable for money; a known quantity and fineness of Silver. Dollar bills printed early in the twentieth century carried the promise to redeem; the bank note entitled bearer to a defined quantity of Silver from the Treasury vault, depending on the denomination of the note. Silver is the constitutional money of the USA.

Today, any Dollar promise is imaginal; no promise is printed on the bill. The implicit promise of the Dollar has something to do with the ‘full faith and credit’ of the US government… a nebulous statement at best. Any ‘faith and credit’ is fading rapidly. When the illusion of ‘faith and credit’ is gone, also gone is any value attached to the slips of paper. By contrast, real money coined by Romans two thousand years ago still carries full value.

Along with ‘print money to inflate away the debt’ comes the other cliché defining inflation as ‘more money chasing fewer goods’. How silly; neither real money nor paper bank notes do any chasing. Only living creatures indulge in chasing. People may use money to chase (purchase) goods… or not. They may hoard or invest, rather than ‘chasing’ goods.

In more precise terms, the quantity theory of money is false; or at best, incomplete. Austrian economics recognizes the concept of declining utility. The more of something we get, the less we value it… and at some point, a margin is reached… where we do not want any more.

As we drive along in our car, and the gas gage moves ever lower, the need for a refill moves to the top of our value list. Once we fill our gas tank, more gasoline has no value for us; its utility is now zero. In the same way, if we are hungry and getting hungrier, finding something to eat moves to the top of our value scale; we look for a restaurant, and buy a meal. Once we have eaten our fill the utility of any further food drops to zero.

A man dying of thirst in the Sahara has water at the very top of his value list… but after a few liters, he cannot drink any more. Water that was of life and death importance has dropped off his value scale, at least for a time. Notice, however, that whatever may be at the top of our value list, we use money to trade for what we want; gas, food, or water, whatever. Money is always at the top of our value list, as we use it to acquire the item we currently want the most.

The marginal utility of money does not decline! No matter how much we have, we can always use more. This implies an infinite demand for money, quite unlike for any other commodity. By corollary, if there is an infinite demand for something, its quantity has no bearing on its value.

Third, we see a bit of simple math; as simple as two plus two is four… not ‘higher math’, partial differential equations, or any other form of obfuscation emanated by CB’s to hide their true intent. Consider a country’s GDP…. GDP is the sum of all monetary transactions in a given sovereignty; all goods and services bought and paid for in one year add up to GDP. (borrowing is excluded, only fully paid transactions count).

Let’s assume the US GDP is sixteen trillion Dollars (World Bank data says about 17 trillion, but we keep the numbers simple) and the money supply is four trillion (Dollar bills and bank deposits). Four trillion Dollars yield sixteen trillion GDP… how is this accomplished? By each Dollar changing hands four times a year. Four times four trillion is sixteen trillion.

But notice that two times eight is also sixteen. If the money supply were two trillion, the very same GDP would be reached by the money changing hands eight times a year instead of four times. Or, if money supply is eight trillion, sixteen trillion GDP is the result of money changing hands twice a year.

The quantity of money is only and exactly half the answer to GDP; the second half, rarely talked about and certainly not on mainstream media, is the velocity… how quickly people spend their money. Whether they use their money to ‘chase goods’… or hoard or invest instead of chasing. Seems like ‘fine tuning’ the money supply is a silly waste of time… indeed, it is a lie, designed to cover up the truth. CB’s have some direct control over money supply… but not over velocity.

If paper is seen to be worth more over time (called deflation) people are motivated to hold the stuff and wait till it is even more valuable… leading to lower velocity and ever more deflation. Ever less velocity is the road to depression. On the other hand if paper is seen to be worth less over time (called inflation) people are motivated to spend the stuff before it loses even more value… leading to higher velocity and ever more inflation. Ever more velocity is the road to hyperinflation. No system based on positive feedback can long survive.

We come to the key point; if the quantity of money is not the whole truth, then what is? The whole truth is that it’s the quality of money that counts. Gold and Silver have quality that cannot be denied or destroyed. Paper has only an illusion of value. When the Emperor’s spear falters, so does the illusory value of his chits. The Petro Dollar is faltering. The Empire of Chaos is faltering. Change your Fiat paper promises for some real money before it’s too late.

The gold price ended on a positive note for the first time in eight sessions yesterday but gloom continues to hang over the troubled industry.

SEE RELATED
Oil price: ‘not a good sign for November’
Gold for December delivery on the Comex division of the New York Mercantile Exchange crept up by 40 cents to close at $1,088.10 per ounce. Trade ranged from $1,087.40 to $1,094.90.

Trading remains tame as investors await clearer signs on US monetary policy, according to the Bullion Desk. Recent data suggests that the US economy is improving, but the long-term picture remains cloudy.

Boris Mikanikrezai, an analyst at FastMarkets, said: “We believe that the sharp weakening in gold prices was the result of growing Fed tightening expectations. While we remain bearish toward the metal in the near term, we do not rule out short-term brief rallies, triggered by disappointing US data releases.”

Although the small increase in prices yesterday was welcomed, the precious metal remains on track for its third-straight year of losses, says Mining.com. The last time gold dropped in value for three consecutive years was between 1996 and 1998. This time, industry commentators warn that prices may fall even further.

Gina Sanchez of Chantico Global told CNBC that gold “hates” a recovering economy, higher interest rates and a stronger dollar. “Those are all three things we can expect,” she said.

Prices hit a three-month low on Friday, prompting analysts to predict further losses.

Gold price hits three-month low – and could fall even further

9 November

The gold price tumbled on Friday, conforming to type in the face of a surge in expectations of an increase in interest rates by the Federal Reserve.

The latest non-farm payroll numbers on Friday show that the US economy gained 271,000 jobs in October, well ahead of both the 182,000 jobs expected by analysts and the 200,000 benchmark for healthy labour market growth. In an unexpectedly strong showing, the Wall Street Journal reports that the unemployment rate in the US fell to five per cent, while wages rose by 2.5 per cent on an annual basis, the best figure since 2009.

With Fed officials already talking up the possibility of a December rates rise, as well as focusing their attention on jobs and growth at home, the report is seen as a sign that an increase is a likely prospect. Investors initially predicted a 50:50 chance of rates being raised next month but they are now putting the chances at 70 per cent.

Rates rises boost income-generating assets but hit non-yielding commodities like gold. The precious metal also suffers when the dollar rises, as this increases the cost of buying for overseas investors.

The gold price fell from $1,107 an ounce on Friday morning to $1,084 at one point, before consolidating slightly and ending the New York session at around $1,087. Last week, it dropped by five per cent overall, its worst performance in two months, and it is now only slightly above its lowest closing price in five years of $1,084 in August.

Analysts reckon that the only way from here is lower in the near term. The think tank Capital Economics told the Financial Times that gold could drop to $1,050, “consistent with a two-year US Treasury yield of 1 per cent”. If rates do increase next month, expectations are for the metal to move towards $1,000 or less.

Where gold goes from here is far from clear. Some analysts reckon it could plunge even lower – perhaps down to $800. Others reckon that once rates begin to normalise, the focal point could switch to the high physical demand for gold and low stockpiles, in which case the price could begin to recover.

If a rates rise fails to materialise next month in spite of current forecasts, we can expect a short-term bounce back of above $1,100 an ounce.

Gold price could head back to five-year low

6 November

The gold price could be set to return to the five-year lows of this summer, as markets await a US jobs report later this afternoon that will give further clues on whether the Federal Reserve will increase interest rates next month.

Last week, the US central bank published its latest decision to hold rates following a vote at its October meeting, but struck a more hawkish tone by failing to allude to the risks to the global economy and talking up the possibility of domestic demand and employment growth. Gold, which tends to fall as rates rise because it becomes less attractive relative to income-generating assets, fell sharply as a result.

This week, the Federal Reserve chairwoman Janet Yellen gave an even stronger hint that rates could rise next month, telling a congressional committee that domestic signs were positive and explicitly stating an increase next month was “in play”. After six straight losing sessions, gold plummeted to $1,107 an ounce on Wednesday, six per cent below where it had been before the rates announcement.

The gold price hit a low of $1,085 in August. The Fed has said it is watching jobs data closely to determine its December decision, making a non-farms payroll report due this afternoon critical. If this proves to be positive, as the market expects, gold is likely to fall sharply again and could re-test this low. The price is currently steady at below $1,108.

As Mining.com notes, adding to the chances of a “dramatic” reaction from gold is the fact that hedge funds and other institutional investors have built up big ‘long positions’ – meaning bets that the gold price will rise – in recent weeks. This means a sell-off could be sharp and its effect on prices severe.

Expectations are for the data today to show the US added 179,000 jobs last month, up from 142,000 in September, and for the unemployment rate to be unchanged at 5.1 percent. If this forecast is beaten – or even just met – then gold is likely to fall. If the data comes in low this could prompt a rise, but the feeling is the miss would have to be wide.

Tom Kendall at ICBC Standard Bank told the Bullion Desk that upward revisions “could open a trap door at $1,100 for gold”. He said a “data disappointment would have to be sizeable to get the metal back over $1,135 in the short term.