We leave the initial edge with the bear camp in gold today with the breakdown from last week's highs on the charts and the US nonfarm payroll result still providing the bear camp with some ammunition. However, February gold has managed to arrest the slide six dollars above critical consolidation support.
Citi expects central banks to take down 20% of global gold supply. UBS has predicted $1600 gold next year and a Singapore based fund manager has suggested investors should allocate 10% of $100,000 in investable funds to gold.
While the markets have not paid significant attention to classic supply fundamentals, gold prices should garner some support from worsening power problems at South African mining facilities. Apparently the national electric utility Eskom has been fraught with significant structural problems and the utility has been forced to implement rolling blackouts which in turn has forced mining companies to shutter production. In fact, the most recent cut back was a record reduction from the utility which they indicate was necessary to prevent a total collapse of the grid following several different plant failures.
At first blush, one could interpret the overnight US/Chinese trade headlines as supportive of gold as the US appears to have pressed China for "movement/action" ahead of the tariff deadline this Sunday. Certainly, the ultimate "risk-on" event is some form of phase 1 trade deal between the US and China, and therefore it is logical to assume some twists and turns in the trade situation into the next flashpoint of December 15th.
Therefore, the bear camp has to be somewhat cautious pressing the short side, especially with gold respecting consolidation support on a number of occasions over the last four weeks. In fact, a negative trade headline now could instantly throw February gold right back up to last week's consolidation which begins at $1,478.
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