The Gold Bulletin 24th September 2017

Executive Summary:

• German Analysts view Gold in the area of $1,500 USD/oz and Silver at $26 USD/oz in the first Quarter 2018

• Gold vs Stocks shows Gold undervalued at levels last seen in 2008

• Global Manufacturing and Managers’ Indexes are near or at all time highs

• Afd has 13.1% and is 3rd strongest Party in German Election. AfD cannot govern.  

Current Gold and Silver Price Action 

The downside risk in the precious metal gold is according to Florian Grummes (Germany) limited to $1,270 per oz, whereas Bart Melek from TD Securities sees the downside risk in the mid-$1,280. 

Technically the bullish trend is intact as long as gold holds above the $1,254 level. Next week the market will digest the German election and the North Korea threat.

Geopolitical worries are somewhat the „new normal“ but in the late Friday session North Koreas behavior helped Gold to move up closely to $1,300 per Ounce.

Macroeconomic indicators do not show a sharp rise in gold prices in the short term. Which is also supported by the latest CoT report, published September 22nd 2017.

Table 1: CoT Report, published 22nd September 2017, source goldseek.com

We can see that large speculators have developed a net-long position (slightly reduced) whereas commercials currently hedge to the downside level with 382,263 contracts. 

In total the market is fairly balanced and waiting for the next bigger trend to be confirmed.  

Gold: Technicals

Chart 1: Gold in USD YTD

The above chart shows Gold in USD from January to September 22nd 2017. Gold started to rise in January and dropped in the beginning of June bottoming out in mid-July in the $1,220 level. 

Since the middle of July Gold started to rally again towards $1,350 per Ounce until the beginning of September and retreated since then close to $1,300 per Ounce. Technically the fall in prices is in line with the 38.2% Fibonacci retracement level. A further decline to $1,254 will be inline with a 61.8% retracement and would leave the bullish scenario intact.

Gold and Silver Outlook

A limited downside risk is seen by our own CelticGold analysis as well as from analysts in both here in Europe and the USA. Florian Grummes is an analyst who works for the Top 2 private bullion companies in Germany and he provided in-depth research showing that gold should rise to the $1,500 area and silver to $26 in the first quarter 2018. 

Heraeus Precious Metals wrote in their usually very conservative market report on September 18th 2017: We see silver prices rising against gold. The gold/silver ratio cycle should start to value silver higher compared to gold. (CelticGold note: This means the gold/silver ratio will go down, which means silver prices start to rise faster than gold. In other words, you will get less silver for one Ounce of Gold).

Currently silver is more undervalued than gold. 

Chart 2: Gold/Silver Ratio 10 Years

The above chart shows the 10 year gold/silver ratio. Silver is currently undervalued with 76.40 Ounces of Silver for one Ounce of Gold. A mid-range value of silver to gold can be seen at 50 to 55.

Gold Undervalued to Stocks

The chart below shows the S&P500 compared to Gold. The ratio is currently 1.93 which means you need to have 1.93 Ounces of Gold to buy one S&P500. The chart shows a „low“ with 0.6 in late summer 2011 where you needed „only“ 0.6 Ounces of gold to buy one S&P500.

Chart 3: S&P500 vs Gold

What the chart really says is, that gold is as undervalued as it was back in 2008. Gold traded at $839 on average in August 2011 and rose to $1,300 currently, a 64.5% increase. Should this cyclical pattern start to unfold than this means gold may rise to the $2,100 to $2,500 level.

Stock Market Outlook

The stock markets are in their second longest bull market of all times, globally trading near or at all-time highs. The global share to GDP ratio is currently at 113%. Warren Buffett said in an interview this week that he sees US shares continue to rise, but also that a „bubble“ could develop. The last time stock market bubbles popped was when the stock/GDP ratio reached 137% in 2008.

The latest published forecasting indexes, such as consumer confidence, purchasing managers’ index all show high-sideways levels or all time highs as the below charts show. At CelticGold we view stock markets to start a bearish trend in the next 1-2 years. Diversifying away from stocks and into gold and silver seem logical at this point.

France: All time high in the last 3 Years
Levels above 50 indicate "growth". 

European Economic Union: All time high in the last 3 Years 

USA: High Level, more in a sideways trend channel

USA Philly Fed Index: High Levels since Jan 2017
(Levels above 0 indicate "growth")

German Election 

The current polls (24th September at 19:38 German time) show:

CDU/CSU 33.2%
SPD 20.8%
AfD 13.1%
FDP 10.4%
Green Party 9.2%
Leftists 8.7%
Others 4.x%

We will see the vote of the German people confirmed at some point tomorrow, Monday 25th September. It is estimated that Angela Merkel will be voted for her fourth term. The market does not anticipate big surprises here. 

The AfD (Alternative for Germany) is an upcoming party that provides the biggest surprise as they get more than 8% of the votes. Which means it is difficult for the big parties to get more than 50% to govern.

Currently there is a chance for the so called Jaimaica coalition of CDU, FDP and Green Party.