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December Dips
Gold & Silver Market Analysis

An in-depth look at How and Why Gold (and Silver) have Moved Every December in the Precious Metals Bear Market

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Originally Posted on 11/20/2016 @10:58pm

by Steven Warrenfeltz

✟

December Dips - it’s better to know in advance why a market dips.

In quick review, in Last Week’s Analysis of gold and silver (seen here), I questioned gold and silver's drop in price and thought it could have been an "anomaly."

It wasn't, and things aren't looking better for the precious metals until after the New Year.  So, after seeing the new reality in Gold and Silver, I started to think ahead.  

One of the best pieces of advice that my uncle, who served in World War II as a Navigator and Pilot of the B-24 Liberator Bomber, gave to his children about investing and life was “To Always Keep Your Eye on the Horizon.”

Ironically, the only way to see what’s on the horizon for the Precious Metals is to look into their past.

Gold and Silver have been in Bear markets since 2011, and although gold and silver’s movement for the rest of 2016 is technically still up in the air, gold has failed to break its long-term falling trend-line, repeatedly.

This week, I took a look back at gold’s 5-year Bear Market chart to see what could be on the “horizon” this coming December of 2016.

In the chart below, you can see that gold has dipped each December for the last five years.

Note: See close-ups under the 5-year chart with percentage changes for each year's December dip.

Chart provided courtesy of TradingView.com

The chart above clearly shows that Gold has not done well in December.

After studying the chart above, I realized that I was only getting half of the story as to why Gold has dipped every December for the last 5-years, and to get the other half of the story, I had to look at this Guide's Quarterly Reports.

2011's December Dip

In the “Gold Price Summary” on the 4th quarter of 2011 page of the Free Bullion Investment Guide (here), the reason I gave for gold’s price drop was “consolidation.”                                   (continued...)

Gold Price Chart - 4th Quarter 2011

But, the articles posted under the charts reveal some of the reasons why the price drop for gold was so dramatic in 2011, which include:

• Investors moved back into U.S. Treasuries
• The U.S. Dollar’s rise
• The price of gold is falling below its 200-day moving average
• Inflation concerns decreased

2012's December Dip

In the 4th quarter of 2012 page (here), concerning the “Gold Price Summary,” I gave greater reasons for the movement in the prior quarter; however, in my explanation, I gave a hint for December 2012's Dip. 

Below the chart is what I wrote for Gold on the 4th quarter page:                                                                                          (continued...)

Gold Price Chart - 4th Quarter 2012

During the previous quarter, Gold's price had risen from the $1500's to above $1700.00, a troy ounce.

The Golden Cross in late September 2012 signaled a bullish trend. However, other global events were also impacting the price of gold.

Two of those events were the U.S. Presidential Elections and the mainstream financial media’s constant mantra about the dreaded "Fiscal Cliff."

These two current events at the time left gold, silver, and platinum searching for a direction; ultimately, all three precious metals ended the year negatively.  Palladium, on the other hand, ended 2012 on a positive uptrend.

The hint in the description above for what was behind gold's fall was the "Fiscal Cliff."

I remember thinking at the time that the budget issues in Washington should give strength to Precious Metals, but it didn't this time.

The Bush Tax Cuts were set to sunset at the end of the year, which caused a great debate among the political parties, but the Obama Administration dug in its heels to let the tax cuts expire, so taxes were expected to rise.

The result of this was that the market sold gold and bought the U.S. Dollar because when taxes increase, it gives strength to the U.S. Dollar.

2013's December Dip

In the 4th quarter of 2013 page (here), concerning the “Gold Price Summary,” I didn’t comment at all on the fundamental reasons why gold fell in the quarter; I only gave technical reasons why gold fell in the 4th quarter.

However, in the articles below the charts (on the quarterly page), I found this video from Bloomberg that breaks down how and why gold moved the way it did for the full year of 2013.

VIDEO: Bloomberg - Too Many Bears in the Woods for Gold

Gold Price Chart - 4th Quarter 2013

2014's December Dip

To understand why gold fell in the 4th quarter of 2014 (here), I found my answers from the quarter's U.S. Dollar analysis:

During the 4th Quarter of 2014, the US Dollar Index moved in the same direction as it did during the 3rd quarter of 2014; up.

There are several reasons the US dollar moved up in late June and early July 2014.

• The decision by the Fed to end its QE (quantitative easing) program late last year resulted in the US dollar gaining strength, as the markets look forward to a change in the Fed's monetary policies.

• Positive U.S. GDP - 2nd Quarter GDP was 4.6% and 3rd Quarter GDP was 3.5%.  In addition, consumer sentiment was recorded at its highest levels since the financial crisis.  

• The massive monetary expansion by the Bank of Japan has resulted in a stronger dollar against the yen.

• Fear of a recession in Europe and Mario Draghi (President of the European Central Bank) is expected by the markets to implement his own form of QE, which has weakened the Euro against the US Dollar.

• The markets expect Janet Yellen, the Federal Reserve Chairman, to raise short-term interest rates.

Gold Price Chart - 4th Quarter 2014

Quarterly Charts provided courtesy of StockCharts.com

2015's December Dip

In 2015, this is the explanation I gave for gold’s price move in the 4th quarter report:

For the last two years, gold's price has been dictated by the Fed's
decision or lack thereof, to raise interest rates.

Since the Federal Reserve ended QE in October of 2014, Wall Street
has been expecting an Interest rate hike, but the Fed has failed to act.

The dovish talk from the Federal Reserve caused gold to rise in the
first few weeks of the quarter.

The price of gold rose so much that it briefly broke above the $1180 price resistance level.

But shortly after the Fed failed to raise rates in October, the Fed
changed its tune and started to speak hawkishly for a rate hike in December.

In addition, the markets expected the ECB to increase its own form of QE at its December 3rd meeting.

All of this talk of increasing Interest Rates by the Federal Reserve caused gold to fall drastically in price, as the chart below shows.

Gold Price Chart - 4th Quarter 2015

Conclusions

In conclusion, there are three other big factors that you need to know as to why gold’s bear market has seen its December dips.

1st and Most Important: Interest Rate Hikes or Keeping Interest Rates at Current Levels will always hurt the precious metals, especially Gold and Silver, which are Monetary Metals.

2nd: At the end of every year, the market is thinly traded.  Most market traders are done with their work for the year, so they take off for Christmas and New Year's and don't come back until after the first of the new year.

3rd: Gold started each year from 2011 to 2015 at a higher price than it ended. To reduce Capital Gain Tax burdens, investors sell off losing assets at the end of the year (December).

As for the rest of 2016, gold started in January 2016 at a 7-year low, but not many investors got into the gold market until its price rose above $1250.

So, because of this, if gold is below $1250 in the latter half of December, it may test its Jan. 2016 low of $1060.50.

One Last Thing...

As for the week ahead, I’ve decided not to post any charts this week for Gold, Silver, and the U.S. Dollar. Before I offer more analysis on their movements, I'm going to let the dust settle after the strong moves.

Overall, I’m looking for moderate reversals in the price of Gold, Silver, and the U.S. Dollar.

So until next week, I hope you have a Happy & Safe Thanksgiving!

God Bless (✟), Steve

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