For UK buyers at least, gold is looking good

This week we return to what is fast-becoming one of stand-out performers of 2016 – gold.

It’s had a great start to the year, no question.

But before everyone starts jumping for joy and declaring this a new bull market, I have a couple of words of warning…

This is typically a good time for gold

January is almost always a good month for gold. This time last year we got a heck of a spike, going from below $1,200 an ounce to over $1,300.

In February and March we tend to see a pull back. So my first note is – don’t get carried away.

Below, I’ve put together a simple weekly chart of gold over the last three years, and have defined the current trend with two blue tramlines. You can see that gold is nearing the top of that range.

Gold price chart

In addition, we have the sloping red line – the one-year moving average. It is sloping down and the gold price is beneath it. In other words, the longer-term trend remains down.

All the rallies of the past three or four years have petered out when gold has neared this line, just as it is doing now.

Gold will eventually break out of this range, but now might not be that time. We shall see. For now I would counsel caution rather than jubilation.

But the gold price in pounds looks good

On the other hand, if you look at a chart of gold in sterling – how many pounds it takes to buy an ounce of gold – then the outlook is rather more positive.

As UK buyers and sellers, the gold price in pounds is in many ways the only thing we should be worrying about. The US dollar price is only really relevant if we are placing a bet, specifically, on the dollar price of gold. (And in most cases, unless you are spreadbetting, buying futures or options, that is not the case.)

So here is the pound price of gold since 2009.

Chart of the gold price in pounds

I have drawn a blue trend line down off the 2012 highs. You can see that, this year, gold has broken above that trend line. That is a positive development.

In sterling terms we are already above the price where we spent much of 2014 and 2015. (That is not the case in US dollars, of course, because the dollar has been strong.)

One of the reasons to buy gold is to hedge against your national currency. To an extent, gold is fulfilling this role.

The sloping red line in the chart above is the 34-week moving average. When looking at gold in sterling, I have not found the one-year (52-week) moving average to be that useful an indicator. The 34-week works better, for some reason.

You can see that it caught some of the lows on the way up (2009 to 2011), and it caught some of the highs on the way down, although I wouldn’t recommend placing vast bets using this indicator – it’s only really a secondary guide.

What is positive here, though, is that it is just starting to slope up. In conjunction with the break-out above the falling blue trend line, you can now start talking about rising trends without sounding desperate. You might also observe a very clean “double bottom” at the £700 mark.

It all makes me want to say that, in sterling terms at least, the low is now in.

But I also note it did something similar in 2014 – a double bottom followed by a slope up in the 34-week moving average, so I’ll hold back from excessive jubilance and say I’m cautiously optimistic.

Sterling has been very weak this year, as we all know. And it is now enjoying a small rally, a “dead cat bounce” – call it what you will. I actually have a buy signal on sterling, which came at the end of last week.

Given the near-vertical ascent gold has seen since December of last year, we can expect some small pullback.

Getting into the really short-term nitty gritty, the ideal action would be a retreat to the £750 area, followed by some sideways action. That way we can get a firmly established low in place, and a solid price foundation on which another bull market can be built.

Here’s hoping.

A new narrative for gold?

I’ve spoken many times here about gold’s need for a new narrative. Last week I was lucky enough to attend the opening party of the new Sharps Pixley gold store on St James’s Street in London.

Dominic Frisby holding a big gold bar

Chief executive Ross Norman spoke about all the innovation that the gold market experienced in the bull market of the noughties – from the invention of the exchange-traded funds (ETFs) to the online bullion dealers such as Goldcore, Goldmoney and BullionVault.

But in the bear market, the innovators, he said, seemed to run out of ideas. With the new Sharps Pixley store to add to their already excellent gold news feed, that may be starting to change a little.

If gold is to be considered a legitimate asset on a par with stocks, bonds or real estate, then ordinary people have to be made aware of it. Of course, a rising price will go some way to doing that, but it’s a two-way dance. You need the innovations to attract buyers to drive the price higher in the first place.

The World Gold Council is paid fortunes to do this. And, let’s face basic facts, it’s not that hard to make gold glamorous and alluring. But it has managed to keep it stuffy and middle-aged.

So it’s great to see the Sharps Pixley store in such a prominent position on St James’s Street, just behind Piccadilly. With all that shiny stuff in the window, the shop is probably now the most conspicuous on the street. They’ve got golden taxis driving around too.

And once you enter the shop, you could spend quite a bit of time (and money) there. There are all sorts of beautiful gold and silver products you can buy – jewellery, watches, coins, bars, little statues. And there’s all sorts of fascinating material about the history of gold and its role through the ages.

This development just the kind of innovation that gold needs. And you should all go.

If you’re lucky, you might even get to handle that 400 oz (12.5k) bar you can see me holding in the picture above. That’s the best part of a third of a million quid I’ve got in my hands there. Pretty cool, huh?

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  • Nick

    Interesting article on the price in sterling, but a ‘new narrative’ is unlikely to be a shop with some historical information in it but perhaps I’m wrong. I’d have thought the beginning of negative rates would be the new narrative, where if you hold cash you’re paying interest on it. I know that’s only applicable to banks at the moment, but let’s see where that one goes, coupled with a frightening movement to eradicate cash so there’s no escaping central bank policy attempts to stimulate and account monitoring or bail ins.

  • Dan C

    Does anyone know where I can get physical gold / silver with minimal price over spot pls? Seems you pay a fortune in premium / spread when you go to some of these shops.
    Thanks in advance.

    • http://moneyweek.com Ben Judge

      Hi Dan,

      Here’s a reasonably comprehensive list of places to buy physical gold. You’ll always pay a premium over the spot price though.
      http://moneyweek.com/buy-gold-where-and-how-to-gold-bullion-coins-bars-14600/

      • Dan C

        Great – thanks very much Ben.

        I went to one of those places a couple of weeks ago (in London) and 1Oz silver Britannias from last year were £18 each (inc vat).

        Is there a more efficient (and legal) way to get hold of bullion do you know? Anyone?

        • Piscivore

          Bullionvaul will let you rock up and take away a bar if you buy enough of theirs…

  • http://Overgrow.ning.com/ ElectroPig von FökkenGrüüven

    The only thing that’s an absolute certainty is that the vast majority of people will remain utterly clueless as to “what money is” until the very second AFTER they learn that their “fiat debt notes” are worthless…or that the bankers took all of their digital zeroes and ones they “believed” were “money in their account.”

    In the meantime, most will remain blissfully distracted by whatever the politicaliars and the corporate-controlled media chooses to tell them they care about.

    Mose peepulz jess ain’t two turrbull smawrt.

  • Mr.Maxi.Psycho

    They won’t raise rates and will introduce more stimulus than the US…as we’re far more dependent on real estate. Its a safe enough bet to cash out your pounds for a mix of dollars and gold in my opinion…

  • LeMonsieur

    Dominic here. The dollar downtrend is broken! Next barrier is October’s high at $1,175.

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