Investment Professional Forecasts $800 Gold

And no, his name is not Nouriel Roubini. It's Thomas Winmill, and he's a gold fund manager; his gloomy prognostication is over at Yahoo! Tech Ticker:

"Global liquidity is tightening a little bit and that's usually bad for a hard asset such as gold," says Thomas Winmill, manager of the Midas Fund. "If we see fiscal [discipline] [and] monetary discipline in the U.S., I would say we might see gold go back to its marginal cost of production, which is about $800 per ounce," nearly 30% below current levels.

He pulls back from it, though, and expresses the hope that gold will average $1,200 in the first quarter of this year. The Tech Ticker post says that he's making the point that gold is volatile, and shouldn't be plowed into by the regular person. To be fair, his bearish forecast is more of a scenario given the conditional nature of it. However, gold fund managers are expected to be bulls. Winmill has deviated from the usual line in a significant way.


One way of interpreting this unusual bearishness is as an attack of nerves. Gold's been hit hard in the last couple of weeks, surprisingly so given its rally up to the 12th of this month. The extraneous factor that pushed gold down was, of course, People's Bank of China policy responses to the blooming inflation in the PRC. Perhaps more significantly, the fall of the Euro due to the fiscal troubles of Greece shows that the greenback, not gold, still attracts the bulk of the safe-haven money. There has been some inflationary news from the U.K., but not in America. U.S. inflation has not been fashionably late, it's been a no-show so far.

These changing near-term fundamentals have indeed put their stamp on gold's chart:



The recovery earlier in this month has topped out at slightly more than half of the December decline. According to chart-watcher lore, that recovery level is consistent with a countertrend rally. The relative-strength (RSI) line, at the top of the graph, topped out only at a middling level. When gold was roaring up, the RSI would end up in oversold territory before the rallies ended. Also, the MACD indicator did not work on the bull side this time 'round. When the black line crossed above the red line on Jan. 6th, gold was at $1,140. Now, the black line's sunk below the red and gold's below $1,100. Anyone taking the bull side using that indicator would have lost money. A review of the rest of the chart shows that taking the bull side of the MACD indicator under those same conditions would have led to a large profit.

No, things don't look all that well for gold right now. The weekly chart shows a similar story with respect to the corresponding MACD indicator:



This chart gave an MACD-crossover warning three weeks ago. In retrospect, the warning was prescient.


Of course, the long-term picture still shows a long-term bull market still in place. There's cause to call the June to November run a mini-bubble which has now popped. The long-term fundamentals haven't changed. What has deviated from the bull script is their lack of manifesting themselves.

The pertinent question, though, is: are the forces that pushed gold up last year now disspiated? The greenback bear market has, and supposedly eager central bank buyers have been publicly dormant as of last month except for Russia. I note, however, that investment demand has not collapsed. The holdings of the SPDR Gold Trust have been unchanged for the last three days, and there's talk about physical demand picking up now that the price has dropped.

The low for the spot-gold fix was reached on Dec. 22nd at just above $1,080. The daily chart above shows the low touching $1,075 on that day. Most technical signs point to a continuation of the current decline, with People's Bank of China tightening and a greenback rally overhanging the market as fundamental downers. Despite those signs, and their dovetailing with known fundamental factors, there hasn't been wide-scale liquidations by gold-holders. At most, only minor liquidations have taken place.

The fate for gold in the near term will be determined by bargain-hunting, or lack of. That's the hidden fundamental on the demand side.