When I look at the current gold prices, I question if we are in the process of making a long-term bottom.
You see, when bottoms are being placed in, there are certain phenomena that take place. And the gold market is certainly seeing a few of them.
Gold Prices Finding a Solid Foundation
One of the biggest factors convincing me to believe that there may be a bottom forming in the gold market is the price action. Please look at the chart of daily gold spot prices over the last year, paying close attention to the green circled areas.
Chart Courtesy of StockCharts.com
I am watching one critical level; $1,140.
Since November of 2014, this level has acted as a solid floor. The price just simply refuses to break below it. $1,140 has been tested three times since, and the price has bounced higher every single time it reached that point. This essentially shows that there are buyers at that level, and sellers aren’t strong enough to bring the prices lower.
In technical analysis terminology, this is referred to as a “Triple Bottom,” suggesting a potential reversal in the making.
Pessimism Towards Gold is Rampant
Another factor convincing me of this bottom is the pessimism towards the yellow metal.
Just to give you some idea as to how irrational investors have become, consider what happened to gold prices between 2009 and 2012. They were rising primarily for two reasons; the Federal Reserve printing money, and uncertainty in the global economy.
Certainly, printing has stopped in the U.S. But it remains in other parts of the world. The European Central Bank and Bank of Japan are outright printing money. China hasn’t announced it yet, but sooner than later we will hear it was printing all along as well.
When it comes to uncertainty in the global economy, it’s severe. Major economic hubs are struggling to show growth. In fact, a global slowdown shouldn’t be ruled out when looking at the current condition.
All things considered, one would assume gold prices are skyrocketing. This isn’t the case. The yellow metal is trading in a range, and surprisingly enough; declining on the days when and if there’s news about more printing or uncertainty.
Big Buyers Remain in the Market
Here’s another phenomenon to look at when trying to find a bottom: Are there any big buyers left? When it comes to the gold market, few of the biggest buyers I follow closely—central banks, India, and China—indeed remain in the market.
Central banks in the first quarter of 2015 purchased 119.4 tons of gold. They have been buyers of the precious metal for 17 consecutive quarters. Mind you; going forward, expect them to buy more. I have written about this in these pages before. (See “Central Banks to Dictate Direction of the Gold Market?”)
Central banks need the yellow metal. They are slowly realizing that fiat currency doesn’t really help them much. (Source: World Gold Council, May 14, 2015.)
Buying from India and China remains solid as well.
When prices are down and you continue to see big buyers remain in the market, it suggests they see value; and low prices haven’t discouraged them.
Gold Outlook for the Remainder of 2015
Since I have been following financial markets, I have learned one important lesson; investors at times tend to be very irrational and simply don’t pay attention to great opportunities. Currently, they refuse to look at gold. In my opinion, it’s presenting us with an opportunity of a lifetime.
I remain optimistic on the yellow metal. I am looking at it for the long-run, and it’s currently making solid foundations for a massive upside move.