EC You Buy The Fear In Gold

This article does not speak to gold’s proper fundamentals, which are not yet very healthy (although some positive signs are finally gathering). For the proper counter-cyclical atmosphere to engage gold bulls would need have risk ‘on’ markets and assets crack. Yet, gold’s (and silver’s) price may well bottom before readily obvious fundamental improvement is apparent to a majority (as was the case in Q1 2016). 

Far too much analysis is put out there linking gold with inflation. It is true that gold often acts as an effective inflation hedge, but it all too often fails in that capacity.

Far too much analysis is put out there linking gold with war, terror, pestilence and other conditions of human suffering. The surest way to spot a gold promoter, if he is not pumping inflation, is his pitch for gold as a disaster hedge. Yes okay, and I have a little Unibomber shack in Montana to sell you too.

Far too much analysis is put out there linking gold with the vast “resources”and “hard assets” trades. These things are of a cyclical nature and gold is ready and waiting as the anchor of stability on the counter cycle, as cyclical assets are liquidated. At best gold under performs when resources and commodities are booming during inflationary growth phases in the global economy, and should be held only for long-term considerations at those times.

On shorter-term phases, you buy the fear in gold when many gold bulls, influenced by factors like those noted above, are puking their metal to the lowest bidder. It is an almost ritualistic “running of the gold bugs” as I call it.

The most recent liquidation was probably instigated by large speculative interests that chased the momentum of the last inflation trade, which gold did lead in December of 2015 as it bottomed 1-2 months before the tide began to lift silver, the miners, commodities and US and global stock markets. This inflation trade has been largely anti-USD, and it has weakened in the face of the recently firm USD. Simple.

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