During the last 21 days the gold price has fallen around 7%, with only two short-term mini-rallies along the way.  There was another brief one Thursday and Friday last week, but this first morning of the weekend, as I write, the precious metal is just holding above the $1700 line.

Once again, with the advent of crafty Draghi predictions and more QE from Bernanke – and in the absence of any more certain data to go on – gold is heading down towards another low test.

But there is nothing sacrosanct about lows or highs: a single cataclysmic event can overwhelm every preconception to produce new parameters.

One of these took place yesterday, but bad stuff often slips under the Friday Not Interested net. As the smart folks watched the Greek chances of getting their next bailout shoot down a snake, the gold price shot from $1704 to $1717 – no doubt directionalised by early-morning New York opinion leaders. They then sold bigtime during mid-afternoon, leaving the suckers more or less back where they were the day before.

Gold is an athlete warming up off the track at the moment. The questions for investors now are, as the price pulls back, (a) at what point would the time be right to buy in, and (b) this time – if and when it sets off upwards again – will it break through the $1800 barrier – a very important psychological number for the market – and quickly onto, say, $1850?

This doesn’t represent financial advice on my part, merely commonsense observations. They are as follows:

1. Gold is a manipulated market, and has been for years.  So caveat emptor – although some forces are greater than central banks and Fort Knox. However, if the real, ‘natural’ price of gold starts to rise beyond a given rate, the US will sell bigtime (as they did in the 2007-2009 period) QE will be increased to keep stock prices up and thus discourage mega-piling into gold, and other central banks will sell too.

2. Nerves are more strained today than they were in the summer. If the price pulls back to $1680 this time, I will take that as a buy signal. Gold rises, generally speaking, on bad currency and stock market news, seasonal factors – and, more recently, the stockpiling power of China. Bad news is being held off until after November 6th, the European common currency project is in deep trouble, the Pound could soon be hit by more evidence of bank toxicity, and in the coming months Indian demand will rise as a reflection of religious decoration.

3. At some point, gold will shoot way beyond $1850, way beyond £2000, and quite possibly up to £4000. As always, it all depends on how bad the news is, whether central bankers have the volume selling spine to stop (or slow down) anything beyond £2000, and what China does. So the task at this point is to assess both the depth of politico-economic doo-doo and timescales involved. As I’ve opined before, this is something of a mug’s game….but it does no harm to be aware of the possibilities.

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Although there is less central control now, China is getting smarter about gold purchase: she buys slowly and in smallish quantities – and under disguised identities at times. Occasionally, a short shock is delivered by buying nothing. The obvious reason: don’t drive up the price of your favoured investment too much. At the moment, China is probably the second or third biggest buyer of gold, and has a rapidly expanding access to locally mined supplies – 84% in the last four years alone.

Outside China, sovereign wealth funds are also changing the rules – a Slogpost from early September looked at them going direct to the miners to ensure continuity of supply.

The scope for China to build on its gold mountain is absolutely enormous, the Beijing regime having unofficially more or less given up on America solving its debt problems. If China is buying and mining lots of something – but demand for it still exceeds supply in a rapidly enriching Asia – the only way for the price to go in the foreseeable future is sharply up.

The eurozone is melting down pretty much as advertised, with the course of fiat currency compromise being directed by Mario Draghi at the ECB. Germany must either leave, or accept it. Either way, the euro will be inordinately expensive to retain in its current form – and a write-off if Berlin does leave the currency.

Nobody is entirely sure, for example, where the Greek ‘Deal or No Deal’ game show is going. But while I find it ominous that Berlin is once again this week indulging in silly spin-games to appease its domestic voters, the reality (on my spread-sheet at least) is that it will need another bailout by the Spring – locked EU escrow accounts or not.

The zone’s banks (and at least five sovereign States) have insoluble debt problems exacerbated by insanely EU-created austerity. France is already infected by Greece, and almost certain to join the debt basket-cases during 2013. Germany has enormous debts too, but currently enjoys a healthy trade balance and a low cost of debt maintenance: yet it too faces a terrifying bank exposure to Spain.

When the solids hit the fan on all this, US banks will in turn find themselves in deep trouble…not least because a good 60% of the major Wall Street institutions are massively over-leveraged, unpredictably hedged, and hugely exposed to ezone debt. The same is true of UK banks.

Finally, we mustn’t neglect the SE Med to Middle East axis. Iran is in big economic trouble, the Syrian conflict is (predictably) leaking all over the place, Israel remains bellicose about taking out Iran’s nuclear capability, and Russian influence in Cyprus is increasing rapidly. The Americans and Europeans want certainty of oil supply until shale gas gets bigger, whereas the Russians would love to produce massive supply interruptions to escalate the value of their domestic product. The Middle East is usually on tilt to some degree, but conflicting interests tend to produce bigger armed conflicts.

In short, the portents are terrible for the world, but have probably never been better for gold. We just don’t know when the portents will turn into sh*t-filled fans.

Further, the human capacity for optimism exceeds even the Chinese appetite for gold. And (I’m sure) to keep panic under control while depressing the gold price, the Chinese themselves are playing on this denial.

On Thursday, China’s Ministry of Industry & Information Technology gave an upbeat forecast for Q4, pointing to improving PMI, monthly increases in output growth, and a rise in power generation to argue its case. I regard this as hype – PM indices are a measure of opinion not orders, and the weakness in China’s overseas markets, rising costs, financing strains and profit margins are as real as ever.

However, mugs everywhere believe this guff – or are directionalised by crooks into believing it’s reflected in market movements. So the exact point at which panic will overwhelm control remains an enigma.

There is one thing, and one thing only, that could spoil the party for the nimble-footed: if manipulative control turns into a ‘global’ ban on private ownership and selling for investment purposes. As The Slog revealed yesterday (to an accepting and largely unsurprised world) such a possibility is already being given serious consideration by the ECB’s Hobgoblins.

But the nature of Draghi’s examination of gold extends beyond control: it looks like the most powerful financial strategist in Europe is considering the positive application of this metal to sovereign debt policy. Smart commentators like Gillian Tett have been writing about this for a while now, and yesterday I posted about the (perhaps not coincidental) issue of Bundestag gold-auditing in Germany – plus Berlin’s decision to repatriate a lot of gold held by the US Federal Reserve.

I have one simple observation to offer here. Logically, if the eurozone turned to offering a guaranteed and allocated gold-backing for sovereign debt products – and other global regions took up the idea – then we’re going to need more gold. The ECB’s hope, I’d imagine, is that EU citizens would sell him what gold they have if trading in it were about to become illegal. Knowing the skullduggery of Signor Draghi (and the psyche of most mainland Europeans at the minute) my instinct is that the ECB is going to need quite a lot more bullion than it has at the moment….and a lot of EU citizens are also going to hoard it in everything from bedknobs to the Caymans.

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A large investment conundrum is thus taking shape here: most central bankers are no less crooked than any other form of banking lowlife. If the intention is to stockpile gold, then in their amoral decision system it would make total sense to manipulate the price down during the quietly-piling-up period.

On the other hand, once the pile is big enough, their desire will be to inflate gold’s value on the back of using it to guarantee paper debt. It is, after all, a First Rule of the governing elite that what makes them richer is fairly pointless if it doesn’t make us poorer.

Further, nobody knows – not even Supermario himself – what the start-point and timescales are for this.

And finally, if the eurozone were to lead the way with gold-backed debt – and be seen to be successful – then the debtor world outside Europe would pile in with a similar approach. (Thanks to the Scottish Cyclops, we here in Britain don’t have much gold left…..and even less money with which to buy it. That’s not important right now, but it is catastrophically important for anyone holding Sterling).

However, while the nature of how and when remains very blurred at the edges in relation to all this, some overriding factors cannot – in my humble, private and not professionally offered opinion – be ignored or altered:

i. China is mining and buying gold – and will continue to do so on the sound bases that it represents geopolitical power in general, and a hedge against Western fiat currency failure in particular.

ii. South Africa will resume its output soon enough…and be selling it to more people in more unusual ways than ever before.

iii. The current price of gold is in a holding-to-falling posture.

iv. While in the short to medium term it will probably be in Western sovereign debtor and Chinese interests to keep the lid on gold prices, in the longer term it won’t.

v. The window of opportunity for citizen gold investors may well close at some point in the next three to four years.

vi. The Middle East is unstable and holds the potential to interrupt energy supplies. Sovereign wealth funds in the region would I suspect pile into precious metals at the first major signs of that happening.

vii. Western stock markets are being held up by an injudicious mixture of QE and hope. These are weapons of finite effectiveness…and awareness of that reality will become mainstream to the point of near-unanimity in the next twelve months. One a massive flight to safety gets under way, if sovereign States keep selling gold to stem the rush, then the exit route of backing debt with gold will be cut off for them. The rush will become unstoppable at some point.

viii. Western fiat currencies face a future in which  – with the probable exception of the Swiss Franc – their value could do anything from decrease markedly to disappear.

We are already seeing the top-end ‘glitz bricks’ property sector zooming upwards in price. For me, once gold dips under $1680, that’s a signal to buy and keep all the way until the purchasing door is slammed shut. What you do is up to you – my own opinions are free and not offered in any shape or form as advice, he said – to provide a final legal cover for his backside.

Enjoy the weekend.