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Gold - still has more to lustre

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Want an insider from a city of London expert and analyst on gold? This article was jotted down on a napkin during a lunch with a friend of mine earlier this week. The person manages several billion of investor capital and they have piled in on their gold holdings this year. Apparently the uptrend has only started...

Gold price and negative yielding bonds correlation

Using a simple correlation to the amount of Sovereign debt in negative yield territory in percentage terms in comparison to the amount of debt out there it is about 27% thus $7 trillion USD worth. This is also perfectly matched by the same amount year to date that Gold in USD terms is up roughly 27%. With yields in major bond markets in a down-trend for yields especially in Japan, and in core markets such as the US and Germany, real money investors are forced to buy higher yielding assets by mandate. They are not allowed to hold negative yield assets on their books. Thus gold appeals for this simple reason alone.


GOLD daily chart with 20 day moving average priced in USD per oz


Scarce supply

Using more conventional wisdom for the yellow metal there is actually a scarcity of supply. South Africa used to be the largest producer back in the 1970s about 1,000 metric tonnes. Now china is the largest producer of about only 400 metric tonnes, but consumes more than that on average. Typically August seasonally and the end of the calendar year are periods where bounces in the gold price occur and this August could see another rise to $1,395, and next year towards $1,650. Long term the $1,826 high could be surpassed with view to $2,100. The cost curve for gold lies near $1,060, (how much to make an ingot and get into storage). The low last year was just a few dollars below the cost curve a classic buy signal.

Top 5 gold producing countries


 

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