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Prospects dim for gold

November 13, 2014

Prospects dim for gold

By: ASAD RIZVI   Published on November 10, 2014
GOLD @ $1177 means nothing has changed, as gold will soon resume its downtrend trend. There could be an argument that US growth may be on the up-move based on improving economic data, which could be temporary and the US economy may enjoy some more happy moments. In reality, this is not a lasting trend and should be short lived in the absence of genuine revenue/income growth.

One should not lose sight of the economic cost of current up-move, which is in many trillions resulting in a sharp surge in FED’s balance sheet that was only possible through printing of money. Unfortunately, the fattening of FED book did not help corporate businesses to grow; nor did it immensely ease the sufferings of general public. Instead funds managers and large corporations were the real beneficiaries, minting money at the cost of tax payers.

After FED’s decision to do away with the quantitative easing, there is not much left for speculators or the big businesses.

There was a lot of noise when gold was at $1900; there were speculations that it would hit $2500; some were even forecasting $5000. Basically it was due to geo-political factor in the Middle East, pressure on Europe and China’s economic boom that lasted for 2-decades. Now China’s growth is below 7.5 percent and the future remains uncertain. The Ukraine issue is political.

With oil prices sharply down, well under the control of oil producers, it may not enjoy 100 mark due to threat of shale production. US Dollar will remain strong as ECB and BOJ have fallen in QE trap.

Therefore, gold’s up-side will be temporary and in medium-term it should struggle to make substantial gains due to liquidity constraints. Just keep in mind a $10 drop in Oil with daily demand of over 95 million barrels on yearly cash shortage amounts to over $300 billion annually, whereas, oil price is down by nearly $30.

Hence, holders of gold will be frustrated. Swiss vote is the last hope for gold, $60-70 billion buying in 5-years will not bring a change; it will rather provide an opportunity to sell. In medium-term levels to watch on the upside is $1210 and $1280; a break could see another $50-70 surge. But any up-move would be an opportunity to sell. I am looking for a fall, as I am expecting sellers to dominate and jump on the bandwagon. A break of $1110-20 will open gates for $1080, as I am targeting $925.

Copyright Business Recorder, 2014

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