As reported on November 13th, gold demand has fallen to its lowest point in nine years, as the North American investor market decreases. This week we see continued divergence growing from the gold market, as the end of November had gold reach its highest ever monthly trading volume on the COMEX exchange in New York of 7.1 million. This occurred at a time where prices have stayed in the smallest range seen, changing only 3.5% from early October.
It’s important to note that most trades within COMEX are paper only- however, it is also the main way that major North American industries buy their gold. When a bank, hedge, or commodity fund purchases gold, it is not done through the purchase of single coins and bars, but on the futures market. So even if you are a physical investor in this precious metal, this incredible volume of purchase is something you definitely need to keep an eye on.
Volume Precedes Price
One market standpoint is that buying and selling will begin volume indicators before any of the prices actually change. This means that record highs do not just strike out of the blue. As each is bought or sold, metals change from weak hands to strong hands. Right now, with these major divergences, we are seeing in the gold market, it is clear that something is setting itself up. The question that is raised by this is why?
To get an idea of where the market is as a whole, it’s important to take a look at all the precious metals and see where they are buying and selling. If you look at the current market, even with the recent record broken at the end of November on COMEX, there is a 2.5 year low that looks remarkably similar to where the GDX gold miners fund is right now. The last time that this fund was at this low of a point was when the fund was priced 38% lower than its current price. This seems to tell us that investors in gold mining have walked away or held back this year.
What Does All of This Mean?
Looking at all of this information, it seems that industry money is moving into gold, while the more speculative side of investing, like the gold mining sector, is stuck at a low point. Something to take into account here is the recent surge in bitcoin, which is likely taking for itself a large portion of the capital that goes into speculative areas of the market.
You, as a physical investor, are a contrarian acting against the mainstream of current investors. Looking at a multi-year time horizon, all of this adds up to a promising future for you. We are seeing smart money setting up now, and not seeing much speculative money on the market. The flat prices in evidence since 2013, the high number of industrial investors entering gold, and the long period of lows of retail and mining combine to create an excellent scenario for precious metals investors.
Christopher Aaron has been trading in the commodity and financial markets since the early 2000's. He began his career as an intelligence analyst for the Central Intelligence Agency, where he specialized in the creation and interpretation of pattern-of-life mapping in Afghanistan and Iraq.
Technical analysis shares many similarities with mapping: both are based on the observations of repeating and imbedded patterns in human nature.
His strategy of blending behavioral and technical analysis has helped him and his clients to identify both long-term market cycles and short-term opportunities for profit.
This article is provided as a third party analysis and does not necessarily matches views of Bullion Exchanges and should not be considered as financial advice in any way.