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The price of gold has also been twisted by Bernanke and doesn’t seem to show signs of recovery. It’s not only the absence of QE3 that is driving the price down. Here are 5 reasons why gold is going down long term.

In addition to fundamentals, also the technicals point lower. Gold price has lost uptrend support but still has room for falls until it reaches critical support at the gap line.

Gold Fundamental Weakness

  1. No QE: The common explanation is that without more QE or hints of QE in the Operation Twist announcement, there is no further debasement of paper money and therefore less desire for the precious metal that also was the standard for currencies.
  2. Asian slowdown: Gold enjoyed high demand from Asia and the Middle East, which diversified their investments (from industrial goods and oil). China and other Asian countries are slowing down, and oil prices are falling. This weakens demand for gold for both jewelry and investment / speculation.
  3. Other metals: Prices of other metals have taken a hit: The most notable one is copper.This follows the previous point regarding demand. While industrial metals and precious metals are used for different purposes, they still are correlated.
  4. Yield: Investments in currencies yield interest rate on cash or interest rate from bond yields. While these are extremely low in the US and in many other “safe” places, this yield still exists there and doesn’t exist on gold. With gold, you only enjoy the rising price of this investment, or speculation.
  5. European banks buy gold: These banks were wrong to sell gold in the 90s, and now they are buying gold. That’s an anecdotal sign, but still worth noting.

Gold Technical Weakness

Gold Prices September 2011 Chart
Gold Prices Chart - Click to Enlarge

Looking at the daily chart, we can see a double top at around $1920. The failure to break this line towards the round number of $2000 is one reason for more falls.

Another one is the break of uptrend support. The recent ride in prices was quite unhealthy, and the downfall is sharp.

On the other hand, this could still be consolidation, although quite painful. The critical line to watch is the gap line at $1682 seen at the end of July. This is an important line, and there still is quite a lot of room before this line is tackled.

Further reading:

What do you think? Is the price of gold consolidating or has it turned around?

I don’t frequently cover gold but rather focus on currencies. Gold is not a currency but gold, oil, stocks and currencies are all correlated.

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