The Critical Point for Gold

Oh dear. Your editor has returned from a short holiday in Hobart to find the gold market in a shambles. The yellow metal fell 5.68% on Friday and closed under US$1500. It’s the first time it’s done that since 2011. Is gold’s 12-year winning streak over?

Let’s look at it with our own indicator. According to our data, everything is proceeding according to plan. Far from being the end, or even the beginning of the end, we’re somewhere near the end of the middle…of the bull market.

So what lies in store for gold? Well, as you may know, we’ve been tracking the ratio between the spot gold price in US dollars and the more common ‘B’ shares of Berkshire Hathaway. The thinking is simple: as stocks become the preferred method for investors to beat the inflation and/or front run the money printing of the Federal Reserve, shares will strengthen relative to gold. But how much? Check out the chart below.


In late February, we reckoned the gold price would decline to US$1400 as the Gold/Berkshire ratio declined to long-term support at 14. Well, as you can see below, Friday’s shellacking sent the ratio below 14. The current gold price is around $1440, or about half a day’s work of falling prices, at current rates.

You’ll note a few other things on the chart. The Relative Strength Index is at 20.20. That indicates the ratio is deeply oversold. That means either Berkshire shares are due to fall or that the gold price is due to rise. Either way, now is a critical point.

Of course, the argument from the soft-brained people in the mainstream media is that gold is neither an inflation hedge nor a deflation hedge and therefore is a loser’s game after 11 years of fooling everyone. Exactly why anyone would trust to hold their savings in paper money after the last five years is a mystery to your editor.

But the world is full of strange and stupid people. We’re happy to admit we’re at least one of them and probably both. But if the indicator above is any…indication…the gold selling is over-done. Markets tend to over-shoot in both directions, however. And we could be wrong about a great many things.

For now, beware the doom sayers! They bring ill tidings with little understanding. Tomorrow, you’ll see how even modern artists agree with us. Until then…

Dan Denning
for Markets and Money

Join me on Google Plus

From the Archives…

China’s Credit Boom Krakatoa
12-04-13 – Greg Canavan

The Market Is High
11-04-13 – Greg Canavan

Gold vs Bitcoin
10-04-13 – Greg Guenther

Is Cyprus More Important Than You Think?
9-04-13 – Satyajit Das

Our Largest Asian Trading Partners Are in Trouble: China and Japan
8-04-13 – Greg Canavan

Dan Denning

Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

Leave a Reply

8 Comments on "The Critical Point for Gold"

newest oldest most voted
Notify of
slewie the pi-rat

everything is fine.
just “bailing in” some Au “liabilities”…
the checks are in the mail…

The crash cometh. The money mess, the lies, the stealing etc. this latest gold business is just the rampaging of a wounded animal. When gold makes the next move it will gobsmack the idiot press. Straight up with everything collapsing around us. Most people do not believe what they see, for one reason only… They do not want to know. I am long on silver and gold. My only concern is good stocks to buy cheap for my expensive bullion when the time arrives. I look forwarded to my Daily Reckoning, it is like reading about quantum physics, hard to… Read more »
Gold is low, due to shorting by hedge funds, et al. Their ‘friends’ buy at the depressed price and wallah! those in the ‘game’ makes a killing, except of course the panic merchants and Warren Buffett,( shame about his shares). Of course the fly in the ointment is Cyprus, after being told to come up with another 6 Billion before than can get the ‘bailout’, they have only their gold to sell,… what ructions that would cause. Meanwhile, I await my chance to make my own modest killing. It seems that a certain Helmut Kohl, past chancellor of Germany, has… Read more »
“what ructions that would cause” G’day SC. I felt it likely at times that those stops under 1500 would be run but the liquidation of paper on Friday and yesterday is nothing new and should have been expected sometime. It was a 30% sell off in gold that was part of the GFC beginnings and this time a sell off of the same magnitude gives us 1350 and 1300 in USD’s and AUD’s roughly. Meanwhile where is all the physical moving? Into the central banks and away from the west. One exchange in Shanghai alone has brought in over 400T… Read more »

It’s taken a while to respond because I’ve been rolling on the floor laughing at the last paragraph – “Beware the doomsayers …”
Isn’t this what TDR, MM etc do every day?

Hi Lachlan, A re-run of 2008,, What fun indeed, as long as you are not caught up in it. I suppose it had to happen sometime, with all this free money being handed out, the worlds economies are no better off. Someone had come up with this idea of raiding bank accounts, and I understand it is being talked of in New Zealand, which of course means Aus is next, but not till after the next election of course. So its buy your coins, you know how, and hide them. Nothing much else to do I suppose. Of course where… Read more »

Don’t trust banks FM, trouble is the mattress can get a bit lumpy. Reminds me of the man who closed his bank account because he read not to trust banks, and promptly put the cash in a safety deposit box, in the same bank. Went to your link, and I suspect many people will get burnt, I feel for that man, must be devastating. For Lachlan, this link might interest you.

Seamus O'Flaherty
SC, PMs are a little like that girl who had a little curl right in the middle of her forehead. When they’re good, they’re very, very good… and when they are bad, they are horrid. Remember that gold has suffered three continuous decades under $800/oz… and silver two continuous decades under ten bucks. Their rise to existing levels was the result of fear of inflation, but as DRA’s own journos contend ‘all we see is deflation’. When the next ‘correction’ occurs, how many years may gold and silver return to those decade-long periods of reality? Your mattress isn’t a great… Read more »
Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to