Gold, Oil and the USD

It was last August that I posted about the Price of Gold and the action of GLD, the ETF. I noticed that the ETF had acquired 50 tons of gold yet the price of gold had declined. It seemed strange that the price would go down.

Irevisited the issue and one again The Mess That Greenspan Made has the goods.

Here’s the most recent activity. A lot of buying came in at the recent low of $850.

Jim Willie CB, editor of the HAT TRICK LETTER shows with charts that Gold has broken out of a falling wedge pattern

And what is happening to the USD and Oil?

The USD is sick and appears ready to break down again:

Jesse’s Café Américain has a target of 68.

Looking at the chart of Oil, from THE GOLD FORECASTER by Julian D.W. Phillips, it sure looks like traders need a rest:

The relationship between Oil and Gold is totally out of whack and down at the lowest I can recall. My strategy would be to move money from oil to gold.

2 Responses to “Gold, Oil and the USD”

  1. Hello Mike … Excellent post. Definitely with you on oil. I’m not sure, however, that the creation/redemption process in the ETF ball game is, in and of itself, supposed to affect the price of gold generally. As I understand it, and I don’t claim to understand it completely, the creation/redemption feature or function of ETFs is to give holders of the asset the additional opportunity to speculate on its price by buying, selling shorting or otherwise making use of their hard asset in a more liquid market environment. In other words, it’s like a pawn shop where you take your jewellery in and the pawnbroker gives you a piece of paper. The only difference is that the piece of paper you are given does not have the fixed price scribbled on it by the pawnbroker that you need to pay him to redeem your jewellery but the piece of paper has a price that goes up and down with the general market price of that jewellery or in this case the gold. So you’re not affecting the broader market price just tracking it in a different way. I don’t see any downside to any of this. What’s not completely clear in my mind is how then the ETF (i.e. ‘the pawn shop’) can pull in other punters like you and me who are then able to buy shares in the fund. I don’t think there’s anything against it in principle. Pretty brilliant scheme really if I got it right. Does this make sense or am I just talking rubbish here?

  2. Celal, I am not sure I completely understand the Gold ETF either. With a pawnbroker, If I pawn an article and get a peice of paper in return, that piece of paper represents an actual item. With the ETF I don’t know if their is actual gold behind that piece of paper. There doesn’t always seem to be a one to one relationship either between the price and the amount of gold in the ETF, although the price of the ETFtracks the price of gold. Personally, I prefer the Central Fund of Canada (CEF) for my money.

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