August 2011 Gold Chart Book

As Warren noted in his post last week, I recently decided to discontinue my previous blog. The decision was due to both a lack of time on my part to put in the required effort and a lack of interest from readers. Nevertheless, I have always enjoyed writing and sharing my views on the issues impacting gold investors and I was glad that Warren invited me to write here. So I'll give it a shot.

Let me first note that I am a trader. I believe strongly in the long-term fundamentals for gold and am sympathetic to the political reasons for owning it as well. However, I am primarily in it to make money - in the short-term and the long-term. If there is any point where I think I can make more in another asset, I will sell my gold in a heartbeat (not ALL of it, though) and reinvest elsewhere. Thus, what you will get from me is more of a trader's perspective.

What I would like to share with you today is my monthly gold chart book, which is a summary of some of the fundamental and statistical data I track in helping me understand what is moving gold and where it may be going both in the short-term and the long-term. Many of the charts you have likely seen before, but there's probably also a few that you have not. I must warn you that my approach is highly structured and analytical, and that tends to bore people. But I will throw it up here and see if it interests you. If so, please let me know - if not, please let me know that too and I won't waste anyone's time putting it up again.

The complete report has been posted to Scribd and is embedded below. But here's a few of my conclusions:

§ Gold prices rallied sharply in July, gaining 8.6%. The remarkable performance was due to a previously oversold condition in May, a sharp reversal in speculative positions and strong physical demand. This all was driven by safe haven flows resulting from dual sovereign debt crises in the US and Europe and emerging signs of a severe economic slowdown on the horizon.
§ However, gold’s high premium to its 40-week moving average and the elevated bullish positioning of futures traders suggest an increased risk of a material correction. Consistent with the correlation data, any resolution (short-term or otherwise) of the debt crises is likely to lead to a decline in prices.
§ Nevertheless, the macroeconomic and geopolitical trends driving the long-term gold bull market remain firmly in place. Furthermore, the price of gold relative to monetary aggregates and government debt remains well below historical levels. Thus, any pullback in prices would represent a much needed opportunity to add to positions.
Aurum Trading Gold Chartbook Aug 2011


GM Jenkins said...

Wow, awesome report. The variance and correlation charts I'm always curious about, but I don't have raw data or really time to make them, so thanks for posting it. Great to have you onboard.

Too much here to digest as i have oral exams this week but a few things pop out, so some random points. Surprising that the yen is still favored over gold, isn't it? The Chinese and Indian demand at 40% *rate of growth* is mind boggling. Incidentally, when India bought the huge offering of IMF gold at $1050, I had the idea that that was a pretty strong floor for gold, because of national pride (i.e. they wouldn't want China to buy in bulk at the same amount at $900 e.g.). I mentioned it in an email to Marc Faber, and he didn't seem to take to it, but then he actually made that point in an interview :P

i haven't considered the 40-wk moving average. A real good one - I;ll be following that. Did you see the 50 wk since 2010?? It's essentially a straight line. Wow.

Louis Cypher said...

Great to have you on board Brian. Look forward to reading and learning from you.

Louis Cypher said...

I should add ... please turn your blog back on even if it's read only format. I never got to finish reading it.

Brian O'Flanagan said...

Thanks GM. The JPY trend is completely new and somewhat surprising given that it has its own serious issues. While the chart showed only the four major correlations for gold, I track it against all the major currencies, commodities, equities and bonds. The emergence of the JPY and the 10-year as factors is very unusual. Whether this is the start of something remains to be seen as it could be indicative of a shift in investor positioning.

If you really want to rack your brain analyzing correlations, check out this correlation table:

Regarding using the 40-week, that's much the same as using the 200-day, but I switched to using only weekly data as it became cumbersome to maintain daily data.

Louis, thanks for the welcome. Unfortunately, the blog appears to be gone forever. I thought I backed it up on my computer before deleting it, but is seems I only backed up the images. My plan was to archive it into a pdf, but made the mistake of deleting the site before I confirmed the backup worked. If there is any particular post you remember, you can google it and catch it on google's cache.

Louis Cypher said...

Damn. I was just browsing my way through. I'll check the way back web to see if they indexed your site.

Kid Dynamite said...

Brian - I'd save the "Comex inventories: you see what they want you to see" post if you can grab it somehow...

Brian O'Flanagan said...

Found it! well, most of it that is. I found a previous backup on my old computer from early May. Thus, I lost the June and July posts but honestly most of those were snoozers.

Here's a link to the archive:

Kid, the silver post is in there. I'm thinking maybe I should update it to reflect current information and repost it here.

Brian O'Flanagan said...

Actually, let me take that back. I have no interest in writing on silver right now (you may have noticed that my chartbook does not have the word silver in it anywhere).