Gold prices broke lower this week, as a stronger than expected headline US jobs figure dented demand for the precious metal.

Last Friday night Australian time, the United States released their non-farm payroll report, which indicated that 257,000 Americans had found work, a much higher number than the market was expecting.

Alongside a strong rise in average hourly earnings, it was interpreted as a gangbuster report, which dented demand for precious metals as it heightened the chance of a US interest rate hike.

Gold wasn’t able to hold onto key support lines around USD $1250oz, and closed the week out on a much softer note, around USD $1240oz.

There’s been more easing this week, with the yellow metal currently trading at USD $1223 an ounce, though in AUD terms, it’s still close to the $1600 mark, with a weak local currency supporting the market. Silver is back below USD $17oz too.

Looking ahead, there are a few bullish and bearish factors interacting here. Starting with the bearish factors, futures positioning actually looks fairly aggressive, which is typically a bad sign.

The US Job Openings and Labour Turnover Survey (JOLTS), was also strong, indicating that there are 5 million openings. This report is rumoured to be a favourite of Janet Yellen’s, and her colleagues at the Fed have, if anything, seemed a little more hawkish of late.

Expectations of that rate rise will curtail gold demand for some time.

Rising bond yields (admittedly off an incredibly low base) are also denting demand.

On the bullish front, apart from the US right now, everywhere we look we see more and more monetary easing or policy accommodation. Gold may not pay a yield, but that’s better than earning a negative yield, which is what investors in short term debt all around the Eurozone are witnessing right now.

With a Greek exit from the Eurozone something markets will at least have one eye on between now and the end of February, we should see continued buying out of Europe.

Australian dollar gold investors have had a great start to the New Year. Underlying strength in the precious metal market, predominantly driven by safe haven buying in response to the shock Swiss National Banks decision to unpeg the Franc from the Euro, has seen the USD price for gold trade back toward USD $1300oz.

For local investors, they’ve had the added bonus of a continuing fall in the Australian dollar, which is now trading below USD $0.80, helping send AUD gold prices to $1590oz at the time of writing.

In the last 3 months alone, AUD Gold has risen by just short of $300 per ounce, or over 15 per-cent, with local investors in physical bullion having now recovered all the losses they were sitting on when gold first fell out of bed back in April 2013.

The more contrarian ones used that correction as a buying opportunity and topped up their gold holdings, a smart move in light of the fact physical gold has outperformed shares, cash and bonds in the past 10 years, and by a considerable margin too.

Why the Recent Rally

Whilst the Swiss National Bank decision was the major catalyst for gold’s recent rally, a number of other factors have also helped tilt the balance towards a more favourable gold price outlook in the past few months.

Firstly, yields the world over have been plummeting, with 10 year government bonds in the United States and Germany now yielding just 1.82% and 0.34% respectively.

That is a substantial decline from a year ago, when yields were closer to 2.78% and 1.7% in these two countries, and has been supportive of the gold market as lower yields imply a lower ‘opportunity cost’ of investing in bullion, in terms of income foregone.

Political uncertainty in Greece, which the market began pricing in well before last weekends election of the ‘anti-austerity’ Syriza party in Greece, has also been a factor, whilst Mario Draghi’s Trillion dollar plus European QE plan shows that we are still ensconced in an era of monetary debasement.

Finally, plunging commodity prices (especially oil), have caused many to wonder whether or not the Federal Reserve really will be able to raise interest rates this year as originally planned, as inflation figures are already ‘uncomfortably low’, not only in the United States, but around much of the developed world.

Compounding all of these factors is rising concern about the validity of the ‘economic recovery’ story, with Europe skating along the edge of a triple dip recession, Abenomics in Japan increasingly looking like a busted flush, and the Bloomberg US macro surprise index starting 2015 with it’s lowest reading in over a decade.

Sadly this could deteriorate further this year, especially in light of the challenges the US oil industry is now faced with.

As a result, whether it be due to declining yields, concerns over monetary policy and political stability in Europe, or just broader concerns about slowing economic growth, it is no surprise that physical gold has caught a strong bid in the past couple of months.

It’s not all about inflation

If the gold bull market of the past 13 years has taught investors anything, it’s that rising gold prices are not dependent on higher inflation alone. Indeed since the turn of the century, official inflation rates have been falling, with US inflation, which was 3.36% back in 2000 averaging just 1.60% per annum in this ‘post GFC’ environment.

It has been a similar story in Australia, with official CPI figures for end 2014 coming in at just 1.7% for the year, a noticeable decrease compared to the 4.5% reading we saw in the year 2000. If gold were merely just an ‘inflation hedge’, then it makes no sense that we’ve seen prices more than quadruple in what has been not only a historically low, but falling inflation environment.

Instead, gold prices have been supported over this period by heightened geopolitical uncertainty (Sept 11, Iraq War, Crimea), and greater market volatility (NASDAQ crash, GFC), with the potential for higher inflation merely the icing on the cake.

This bodes well for considerably higher gold prices between now and the end of the decade, especially as the other two traditional safe haven asset classes, government bonds and cash, are already offering negative real returns in most in the developed world, a sad fate that is inexorably finding it’s way down under.

Pro cyclical consumer demand for gold bullion, particularly out of India, China and the Middle East will also prove provide continued support, with ‘Eastern’ buying already accounting for circa 70% of annual physical gold demand, a dramatic increase over the past few decades.

With that in mind, the last three months may be a sign of what’s to come for Australian dollar gold investors in the years ahead. Not only will they benefit from the resumption of gold’s USD bull market, but further rate cuts here should see the AUD weaken further, adding to gains for local investors.

Bottom line: Apart from providing diversification against a richly priced share-market, and a natural currency hedge, holding physical gold as a core asset in a portfolio is likely to be highly rewarding in the coming years.

AUD gold at one point pushed toward $1700 an ounce earlier this week, as the Reserve Bank of Australia joined the global interest rate easing cycle, cutting the local cash rate to a record low of 2.25%, sending the local currency at one point toward 0.76 cents vs. the US Dollar

Prices have since pulled back, as the AUD has staged something of a rally, whilst USD gold is also now trading at $1266 an ounce, down $20 an ounce or so on intra-week highs.

The decision by the RBA was very much priced into the market by the time they had actually made it, with most forecasters now predicting that rates will be cut again, to just 2% by the end of Q2 2015 at the latest.

On this point, whilst we jumped the gun and got our timing a little wrong, subscribers to ABC Bullion’s market reports will know we’ve been predicting lower rates in Australia for some time now.

We expect that the RBA will end up slashing rates well below 2% in the coming years.

The RBA’s rationale for the decision was perhaps best captured in this paragraph from their monetary policy decision statement, where they claimed;

“In Australia the available information suggests that growth is continuing at a below-trend pace, with domestic demand growth overall quite weak. As a result, the unemployment rate has gradually moved higher over the past year. The fall in energy prices can be expected to offer significant support to consumer spending, but at the same time the decline in the terms of trade is reducing income growth. Overall, the Bank's assessment is that output growth will probably remain a little below trend for somewhat longer, and the rate of unemployment peak a little higher, than earlier expected. The economy is likely to be operating with a degree of spare capacity for some time yet.”

No arguments from me that the economy is weak.

As usual, the rate cut was met mostly with support from the mainstream financial media, who talked of the stimulus it will provide to the economy via lower mortgage payments and the like.

Whilst that is true, everyone I’ve spoken since the decision who actually has a mortgage has been adamant they won’t be spending that extra cash in the economy, and will instead keep ploughing it into their record home loans.

Treasurer Joe Hockey also talked it up, and seemed delighted there’ll be more rate cuts to come, though of course when running for office he was describing ultra low interest rates as being at ‘emergency lows’. He was right then. Not now.

We therefore suspect that much like the previous 200 plus basis points of easing the RBA has done in the past few years, this latest rate cut will also fail to provide any kind of major stimulus to the economy, whilst continued pressure on the AUD brings as much pain as it does joy to the economy.

Nowhere is that more evident than in the pain those living on fixed incomes and with money sitting in term deposits will be feeling in light of the recent RBA decision.

Australia: The Wealthiest Country on Earth but No Longer the Lucky Country! is a look at the current state of the Australian economy, as we enter 2015. It looks at the magnitude of the mining boom that we've enjoyed since the turn of the century, as well as the incredible house price appreciation that has taken place over the past two decades.

It then touches on why Australia has not, and likely will not successfully transition away from this mining and housing boom, at least without some serious fallout along the way, something that shouldn't be all that unexpected after 20 plus years without a recession.

Since the start of the year gold has risen strongly, as uncertainty around the Greek election, lower bond yields and European QE have all led to increased demand for safe haven assets.

USD gold at one climbed above $1300oz, though it has still pulled back somewhat, whilst AUD gold has smashed back through the $1600oz mark.

The recent strength of gold highlights once again why physical precious metals should be a core holding in any well diversified Superannuation portfolio.

Superannuation is fast becoming the largest source of savings for everyday Australians, and ensuring the money is wisely invested is critical to protecting and building that wealth.

As it stands, the majority of Australians are in either balanced or growth super funds, which, whilst they’ve bounced back in the last couple of years, have had a very poor run of it over the last decade.

The table below illustrates this, highlighting the fact that balanced funds have only risen by 6.54% this past decade, barely ahead of cash, and a long way behind gold.

Poor Roger Federer. The Swiss maestro tennis player, arguably the greatest of all time, has taken a massive haircut in the past week on any future earnings he’ll generate outside of his native Switzerland.

The reason for that of course was the Swiss National Banks bombshell decision last week to un-peg the Swiss Franc to the Euro, which led to sharp rally in the value of the Franc.

This week’s report, which comes at a time when AUD Gold is breaking above $1600 per ounce, and USD gold is back above USD $1300 per ounce, looks at the Swiss decision, what happened overnight in Europe with the launch of the European Central Banks QE programme, as well as some news from the United States, including sad developments highlighting the death of American business, and the Federal Reserves massive gift to Washington and the Federal Treasury

Let's start with the latest on Gold

Calendar year 2015 is but 15 days old and already markets are in turmoil, with commodities continuing to tumble, equity markets volatile, Bitcoin on the ropes and bond yields plunging as global growth forecasts are slashed. Gold, as we’ll cover at the end of this report, is a relative sea of tranquillity, edging higher in the face of the uncertainty other markets are displaying.

We’ll start our first report of 2015 by looking at commodity markets.

Cop That

Market talk at the back end of 2014 was dominated by the crash in oil prices, which fell some 46% last year, a trend that has so far continued with oil falling as low as $44.20 a barrel in New York. Whilst the oil story is still front and centre, Copper is also on the radar now, with the price recently falling to a 5 year low.

Copper, often known as the ‘Doctor’, because it is supposedly a great barometer of economic growth, is all of a sudden looking very sick himself, as the chart below shows.

What follows is an entirely fictitious account of a debate that never happened, but probably should have!

It was a warm night in mid December, and the Amphitheatre was filled with asset managers, market traders, economists, bankers and journalists, as well a huge contingent of finance students.

They’d come to listen to the Great Gold Debate of 2014, featuring five of the worlds most prominent finance and economics professionals, all of whom had varying attitudes towards the yellow metal, and differing outlooks for the price of gold in 2015 and beyond.

On the stage, the following members were busy arranging their papers, adjusting their microphones and having a sip of water – anxiously awaiting the commencement of proceedings.

First up was CON-FUSED: CON-FUSED kindly offered to moderate the debate for the night. Whilst this was seen as magnanimous, in reality he was relieved. He simply couldn’t make sense of what was going on in the world, and the seeming disconnect between economic reality and what was going on with global asset prices in the ‘post GFC’ world. He wished he were as confident of how things would turn out as CON-VICTION, a last minute withdrawal from the debate. CON-VICTION was 100% sure of himself, and had margined his stock portfolio to the maximum, with a heavily levered long exposure to the SP500.

It’s been another solid week for precious metals, with both gold and silver climbing higher over the past five days. Gold has put on nearly USD $30oz, rising to USD $1225oz, whilst silver is sitting just above USD $17oz currently, up from USD $16.33oz on Friday the 5th December.

In Aussie dollar terms, it’s been a good week too, with further weakness in the AUD helping push the price of gold to $1483oz, up nearly $150oz in the past month alone.

That’s not a bad Xmas bonus for those of us who’ve been steadily accumulating metals over the course of the year.

Why the Rally?

Many people have questioned the strength in gold over the past several trading days, confused as to why it has put on some USD $100oz since the post Swiss referendum plunge.

Certainly there has not been any major bullish catalyst, though the easing of import restrictions and the like in India have helped improve sentiment towards the market somewhat

We’ve also seen some very tepid inflows back into Gold ETFs, with the largest of the lot, the SPDR Gold Trust seeing it’s holdings grow by 1% in December.

The USD rally has also tapered off somewhat lately, though the run it has been on over the course of the year has certainly been impressive, as the chart below shows

If nothing else, this week’s price action in gold proves that the market sure has a sense of humour. Many observers were sure that the failure of the Swiss referendum over the weekend, which would have forced the Swiss National Bank to increase gold holdings to 20% of total reserves, would be the final nail in gold’s coffin, and that precious metal prices would crash lower.

Indeed markets softened up last Friday, trading sub USD $1170oz for gold, and early on Monday it did indeed look like a crash was on our hands. At one point, gold traded into the USD $1140oz range, whilst silver, unbelievably – crashed below USD $14.50oz.

It was around this time that a number of incredibly bearish articles regarding the outlook for gold were issued, with my particular favourite ‘charting’ gold’s imminent demise to USD $600oz

Instead, the precious metal market rebounded violently, on heavy turnover too, with gold shooting back above USD $1200oz, whilst silver, incredibly, went back above USD $16oz, a more than 15% move in one day.

Whilst this has confounded many a pundit, the sharp rally back was in many ways to be expected. After all, sentiment was already terrible leading into the Swiss referendum, and at the end of the day – nothing really changes as a result of it.

The Swiss National Bank wasn’t buying gold last week, and it won’t be buying gold this week

Furthermore, last week we also saw the Indian government scrap their 80:20 rule regarding gold imports. This was one of many rules the Indian government and Reserve Bank implemented over the course of the last 18 months in an attempt to curb gold imports and get their current account under control.

The relaxation of these rules has added some confidence to the market, not that it will necessarily lead to a immediate increase in physical buying

Finally, in further evidence of how tight supply is in the physical gold market, GOFO rates, which is short hand for Gold Forward Offered Rate have been in negative territory for some time now.

For people new to gold, GOFO is a bit of a technical term that takes some explaining.

I’ll write more on the subject another time, though suffice to say it’s a rare occurrence for GOFO rates to be negative, and when it occurs, it’s evidence of tightness in physical markets, and strong demand for the metals.

All up I see the last few trading days as incredibly positive for precious metals, and if gold can close above USD $1200oz for the week, we could see higher prices leading into Xmas and the New Year

Even if we see gold prices stagnate for the next few weeks, and close the year out essentially unchanged for the year, I think it’s been a great year for the precious metal.

That might sound strange considering gold (in USD terms at least) is essentially unchanged for the year, but considering the following, I think we should be very happy

This year – the gold market has had to shrug off

• The cessation of all quantitative easing by the Federal Reserve

• A huge rally in the US Dollar

• Plunging commodity prices

• Further equity market strength

For Australian dollar investors, gold is actually up nearly $100 an ounce, or 6.5% based off an end 2013 price of $1346oz. That’s better than cash, and in line with equities and what superannuation funds are likely to end up delivering

Considering the sell-off in the gold market last year, and the almost universal pessimism that the gold market was facing heading into this year, I think investors in precious metals should be satisfied with what 2014 has delivered so far.

The Australian dollar price of gold has reclaimed $1400oz, up 4% for the year, as weakness in the local currency, which has fallen to just USD $0.85 cents, buoyed prices for domestic investors

In USD terms, prices have been range bound this week, trading either side of USD $1200oz, as the market digests a series of disappointing economic data releases from the United States, with one eye firmly on the pending Swiss Gold referendum, which will take place this weekend.

As a quick reminder, if the referendum does pass, going forward, the Swiss National Bank (the equivalent of our RBA) will be required too

• Take steps to increase their gold holdings to 20% of total reserves

• Repatriate all physical gold held overseas back inside Switzerland’s borders

• Cease all sales of gold bullion

As I mentioned last week, from the conversations I had with people in Switzerland when there earlier this month, nobody had even heard of this referendum, so it’s definitely not something that there is widespread knowledge nor debate about, though this may have something to do with the fact that the Swiss hold many of these referenda on an annual basis.

Alternatively, it could be that when I was there, many of the Swiss were all to anxious, looking forward to the Davis Cup Final, which was completed last weekend, with Roger Federer and Stan Wawrinka bringing home the cup with a victory over France.

Either way, whilst the referendum has the potential to alter the gold market in a substantial way, it does need to be stated that it’s not high on the priority list for average Swiss citizen, at least as far as I could tell.

The Superannuation industry in this country is huge.

So huge, that it’s set to hit the $2 Trillion mark by early 2015, truly extraordinary for a country of only 22 odd million people and with an economy thats only roughly $1.5 Trillion in size.

The industry also charges a hefty clip on fees too, with the professionals responsible for managing Australia’s precious life savings earning close to $20 billion last year.

It's roughly $2k for every Aussie contributing into the system, and they get a legislated pay rise of 9% per annum even if markets go nowhere, such is the nature of a percentage based fee model.

But this article is not about fees - but about another statistic from a short piece i read today (20th November 2014) in the Financial Standard, which really stood out, and that was the allocation to commodities.

As you can see from the attached article, according to the author, some $672 million is invested in commodities. This represents just 0.04% of the total pool of Superannuation assets, which is $1.87 Trillion.

The data quoted came from a just released APRA report, which can be viewed here

Equities comprise 50% of institutional superannuation fund assets, whilst 33% is in cash and fixed income, 8% is in property, with just 4% in infrastructure and a further 4% in ‘other’.

In reality, when you include commodities held through other vehicles, the number is probably higher, though not much in percentage terms, with research firm Chant West suggesting just 0.4% of the superannuation pool is invested in commodities, or about $7.4 billion total.

Either way, no matter which data source you use, the bottom line to this analysis is that that the exposure to commodities in Australian superannuation funds is incredibly low, even though some of the equity exposure is obviously related related to commodities (think mining companies like BHP, RIO, Fortescue and Newcrest).

This is especially relevant for gold, which has outperformed every major asset class in the decade to June 2014, as the following table highlights.

As a quick aside, the less than $7.5 billion total invested in commodities in Australian superannuation funds isn’t even equal to one year’s worth of Australian gold mining output, which is worth just over $10 billion at todays market prices.

The outperformance of gold over the traditional assets that dominate superannuation portfolios could well continue in the coming years, especially in light of the current economic challenges being faced locally and abroad, and the risks that could come to the fore in financial markets in the coming years.

As such, especially when you consider that gold tends to do best when real interest rates are low (like they are all around the world today), physical gold should be a core portfolio holding in the coming years as, apart from the opportunity for much higher prices, it also offers

• Portfolio diversification as it’s uncorrelated to traditional assets

• Protection against inflation should that pick up in the coming years

• A hedge against further falls in the Australian dollar

• A simple, liquid and transparent hedge against periods of severe market turmoil, like the GFC

Institutional superannuation funds, with their minimal allocation of client money to commodities as a whole, let alone gold specifically, could be missing an opportunity here, and it's one of the major reasons our SMSF clients speak to us about when they talk about why they set up a SMSF to start with, and why they're adding physical bullion to their investment portfolios.

Gold prices eased overnight, falling as low as USD $1175oz, as the latest poll out of Switzerland suggested just weaker support for their upcoming referendum regarding increased gold holdings for the Swiss National Bank.

The weakness in the price overnight disappointed the bulls, who were hoping for gold to build on its latest rally above USD $1200oz, especially in light of supportive news regarding central bank buying out of Russia, and a more positive technical set up.

Back to Switzerland, and in just over a week, the Swiss are set to vote on the “Save our Gold” initiative, which, if passed, would require the Swiss National Bank (the equivalent of our RBA) too

• Take steps to increase their gold reserves to 20% of total reserves

• Repatriate all gold held overseas back inside Switzerland’s borders

• Cease all sales of gold bullion

Whilst there is still a chance the referendum could pass, the latest official poll would suggest otherwise, with support falling to 38%. Support for the initiative had been as high as 44% in October, whilst those opposed to the initiative now number some 47% of those polled.

After falling as low as USD $1130oz on Friday the 7th November, gold staged a massive reversal, rallying some USD $50oz to close out the week just below the USD $1180oz mark which had previously marked a triple bottom for the precious metal.

Gold prices pulled back overnight, as the Federal Reserve announced the winding up of its current round of Quantitative Easing. Whilst this announcement was expected, the accompanying policy statement was more ‘hawkish’ than the market expected, and was a major reason driving the gold price as low as USD $1207oz.

Silver was also affected, and is currently sitting just above USD $17oz.

For Australian dollar investors, this pullback has brought gold back below the AUD $1400 level, maintaining the relatively tight range it’s been in since April of this year.

After a solid three weeks, and a strong bounce of the USD $1180oz level in early October, gold prices pulled back overnight, and are currently trading at USD $1232oz, down USD $13oz from their intra day high.

Last week, ABC Bullion was delighted to attend the 7th annual Gold Investment Symposium, which was held at the Sofitel Sydney Wentworth Hotel. As we have for the past few years now, we were proud to sponsor the event alongside our sister company Custodian Vaults, and were delighted to catch up with not only a number of key industry contacts, but also to talk to many of the attendees, including a large number who are clients of ABC Bullion.

Considering the general pessimism and apathy regarding gold as an investment right now, attendance was not as high as it was back in 2011 when gold was threatening to push through the USD $2000oz mark.

From a contrarian perspective, this is of course encouraging news, and whilst no one was denying or attempting to gloss over the pain that the last three years has brought, their was a general perception that maybe, just maybe, the precious metal community has weathered the worst of this corrective storm, and there will be more profitable times ahead.

As always, Kerry Stevenson and her team did a great job getting together a list of great speakers, including James Turk, founder of Goldmoney.com, David Baker, the Managing Director of the Baker Steel Gold Fund, and Brent Johnston, the CEO of Santiago Capital, an ex Wall Street guy who learned what financial markets were really all about years ago and whose been helping his clients protect their wealth with precious metals ever since.

A strong headline non-farm payroll report out of the US last Friday saw gold prices finally break below USD $1200oz. This weakness continued into the early part of this week, with the metal heading into the low USD $1180oz range, a key level that marked the bottom in both June and December of 2013.

Since then, there’s been an impressive rally in the precious metal complex, with gold currently trading some USD $40oz higher than where it was earlier in the week, sitting at USD $1223oz, with silver at USD $17.35oz

For AUD investors, a persistently soft AUD (currently sitting around 87 cents) sees AUD gold prices hovering just below AUD $1400, a reminder again that whilst it’s the USD price of gold the market focuses on, we’re getting a smoother ride down here.

So the big question now is

Was it a triple bottom?

Gold prices bounced around overnight, with the final quarter of the year shaping up as critical in where the metal heads moving into 2015.

After a very disappointing Q3 return, many are predicting further downside for the precious metal sector, especially with silver, often seen as a leading indicator of where gold will head, plunging to new lows lately.

Whilst our attention has been focused on the metals market, its worth pointing out that the broader stock markets have also been doing it tough lately, with the ASX 200 off the better part of 6% in September, whilst European and US stocks started Q4 on a horrible note, off 1% (Europe), and 1.3% (US) respectively.

Indeed some indices have fared even worse lately, with the Russell 2000 index now officially in correction mode, off over 10% from its March highs, and looking like there could be further downside ahead.

As you can see from the chart below, the Russell 2000 has just breached a trend line of support that goes all the way to the 2009 cyclical bottom in equity markets.

Over the last decade or so, there has been a veritable explosion in the number of Australians setting up Self Managed Super Funds (SMSFs), and taking control of this key financial asset.

Whilst transparent costs have been on the key drivers, investment flexibility has also been important, with the ability to buy into asset classes that retail and industry funds simply will not allow another driving force behind Australia’s ever growing SMSF army.

Whilst direct shares, property and term deposits are the major assets that SMSF Trustees tend to build their portfolios around, physical gold and silver are also allowable investments in a SMSF, and at ABC Bullion, we’ve seen a huge increase in the number of Trustees opening accounts with us, so that they can incorporate precious metals into their portfolio.

Below, we list the eight reasons we think our SMSF clients have made the right choice to incorporate bullion into their portfolio, and why other trustees may wish to follow suit

1. Gold has very strong long-term returns

Anyone who has held a core position in gold bullion for the last decade or so has done incredibly well, despite the correction we’ve seen since 2011.

This is captured neatly in the following table, which highlights both the short, medium and longer term returns of a variety of asset class returns, including the areas where both SMSF Trustees and large superannuation and pension funds tend to concentrate their investments in.

If you were to make investment decisions for your portfolio based on the weight of reporting one sees in the financial news, then there’s almost no question that the gold bull market is dead and buried, and investors should sell.

This week we have seen an absolute cavalcade of negative press when it comes to the outlook for precious metals, with a series of ever more dire price predictions.

Not surprisingly, this comes off the back of yet another poor showing from the precious metal complex last week, which saw gold trade down toward the USD $1200oz mark, whilst silver was hit even harder, falling below USD $17.50oz at one point.

This weeks report will look at some of the dire predictions regarding the short-term outlook for the metal, feature some impressive charts, and most importantly, argue why we may be closer to the bottom than many think.

On the surface, it might be hard to imagine that a group of white-collar workers operating out of an air-conditioned office in the middle of the Sydney CBD have jobs directly linked to the men and women working the goldfields of Western Australia, but it’s true.

Bullion dealers like my employer ABC Bullion, who’ve been selling precious metals from our Sydney head office (and our recently opened Perth office) for more than 40 years, are keen to see a healthy and thriving precious metal industry, and it obviously starts with bringing the gold out of the ground.

A healthy bullion industry is particularly important for Australia. Make no mistake about it – physical gold is big business down under. We produce approximately 250 tonnes of gold per annum, worth about $11 billion Australian dollars, which is over half of a percentage point of the nation’s GDP.

Gold is also a major export earner for the country, making up some 5% of our national exports, according to research published by the World Gold Council using statistical data from 2012.

This is particularly relevant today considering net commodity exports have been a significant driver of overall economic growth in Australia these past few years.

It’s for these reasons that I’ve taken a keen interest in the #heartofgold campaign running in Western Australia. It is raising awareness about the importance of the gold mining industry to the Western Australian economy, and the potentially disruptive impact higher royalties could have on the sector.

Whilst it’s obvious to many that drilling companies, engineering contractors, geologists, parts suppliers, and companies providing heavy machinery used on the gold mines would be negatively affected by any disruption to the gold mining industry, the impact wouldn’t just stop there.

It could also be felt amongst

Gold prices have eased back further this week, with a sharp plunge overnight taking the yellow metal down to USD $1219oz, down 1% since last Fridays London PM Fix.

Silver has also weakened, currently sitting at $18.42 an ounce – also down about 1% over the past 4 trading days.

The big news overnight was of course the latest meeting by the Federal Reserve, who, as expected, further reduced the size of their current QE programme, this time to $15bn a month.

Other key comments and takeaways from the meeting were as follows

• They left the Federal funds rate unchanged at 0.25 percent

• They repeated it would be appropriate to maintain “highly accommodative” monetary policy

• They maintained their pledge to keep interest rates low for a “considerable time” even after QE ends

• They plan to end the QE progamme at their next meeting, absent any shocks to the economy or financial markets

• They stated that according to their models, inflation is running below their long term goals

• They stated that they see the US economy expanding, and the labour market improving, but that significant underutilization still exists in labour markets

All in all this was largely as markets expected, with no major surprises thrown in by the Fed, with the bigger news of the night probably the decline in headline US Consumer Price Inflation, which came in at -0.2% for the month.

Originally gold had largely ignored the developments in CPI and the pronouncements from the Fed, trading above USD $1235oz for the majority of the day before plunging some $15oz in fairly quick succession, a move repeated in silver, which gave up $0.30oz in a similar time frame.

All in all, the current weakness in the gold price can be mostly attributed to the strength in the United States Dollar, which has been on an absolute tear of late. Indeed the USD has been in a solid uptrend for the better part of three years now, as the chart below highlights clearly. In that time, the US Dollar index has strengthened from the low 70’s to the mid 80’s, a rally of some 15%.

Not surprisingly, this has coincided with the 3-year correction in the gold price that we have endured. For AUD investors, the correction has been less severe, as the declining AUD (which fell back below USD $0.90 overnight) has helped cushion the blow.

It’s been a disappointing start to September, typically one of gold’s strongest months, with precious metal prices weakening across the board. Gold, which started the month around USD $1285oz, has fallen to just below USD $1250oz, whilst silver is closer to USD $18.90oz, down 3% in the first two weeks of the month.

Strength in the US Dollar, which has rallied substantially against most currencies these past few weeks, has been the major factor behind the weakness in the precious metal market these past few days, whilst the lack of response in the gold market to geopolitical developments in the Ukraine and Iraq/Syria has also concerned investors, as typically you’d expect more of a safe haven rally in precious metals.

Gold ETF holdings, which had held up relatively well for the first nine months of the year, have begun decreasing again, with the flagship GLD ETF now sitting at just 788 tonnes, down approximately 20 tonnes on where holdings were in the middle of July.

On the futures market, open interest is close to its lowest level in five years, highlighting lack of investor demand, whilst managed money traders (i.e. short term investors) have been adding to their short positions quite aggressively of late, something we expect to have continued this week, in light of the price weakness.

Meanwhile, a whole heap of technical analysts have released pieces in the last few days pointing to violated moving averages and the like, with most fairly bearish on what comes next for the precious metal market.

On the physical side, Shanghai gold premiums have risen in the past few days, indicating support from the world’s largest gold consumer and producer, whilst demand out of India can also be expected to stabilise if not strengthen in the coming months.

As for where the market heads from here – we reiterate previous messages that we’re still in the process of bottoming, and that one final wash out in the sector wouldn’t be entirely surprising

As you can see from the chart below, which goes back to the start of 2011, gold had a burst to the USD $1900oz level 3 years ago, followed by three failed attempts to bust through USD $1800oz.

Since then, we had the original flash crash of April 2013, which saw prices ease down toward the USD $1300oz mark, and since then a double bottom around USD $1200oz.

As a result, another test of the USD $1200oz mark could well be on the cards in the coming weeks.

For me personally, dollar cost averaging into the sector at these levels makes a lot of sense. Calling an exact bottom is nigh on impossible, and I’m happy enough being able to buy gold and silver at today’s levels.