What is going on with GOLD?
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Thanks for viewing, I labelled this as "long" despite some as yet unexplained steep price reductions in the short to medium term. I did that because I saw that price drops were coming but that was just a signal to add to purchases, as opposed to sell.
Why do I expect price drops in the short to medium term?
1. Elliot Wave seems to indicate the ending of wave (3) up, it is always hard to be sure, but anyone can see the three sections of price advance (and two declines) in the last two years,
2. There was rather evident bearish RSI divergence (higher price highs vs lower highs on the RSI) that emerged even before this last weeks price drop - indicating a loss of momentum,
3. A couple of rejections in a row from the USD1700 level,
4. Gold appears to be "overbought" on your technical indicator of choice (and it is hard to afford at the moment - many people will be waiting for a pull-back before buying - many many others can't or won't wait however.
5. Just look back a few years, the same thing happened in 2008, there was a steep decline in the price of gold during the last recession (it still gained 23% over the duration of the recession) because the same circumstances applied - some people were forced to sell due to circumstances - the rest had the ability to hold and also clearly saw the writing on the wall).
Why do I remain long?
1. Let me count the ways.
a.It is the perfect investment vehicle for the moment (uncertainty, money markets, debt markets and supply chains freezing up (bullion cannot get through either)),
b.record levels of open market operations announced by the US fed in the past week (otherwise their 30 year bond issue was going to possibly fail to find sufficient buyers - this should be a major salient red flag: the largest, supposedly most credit-worthy country in the world, was a few minutes (about 20 minutes I think) from having a sovereign bond issuance fail to find sufficient buyers if they didn't announce a new round of quantitative easing),
c. negative real fixed interest yields and the increasing possibility of negative nominal yields (this has changed very quickly from yield increases even mid last year) which mean that the "negative carry" aspect of gold (storage fees and no interest income) is less and less of a factor,
d. If you take inflation into account (let alone the comparably much larger increases in the money supply) gold is still significantly undervalue in real terms - yet $1600 sounds like a lot for just over 31grams of gold but not when you consider how worthless the currency has been made and will continue to become. There is a possibility of gold going geometric a la Venezuela, Argentina, Weimar Germany etc etc - some truly unimaginable gold prices are possible. If gold 'appreciates' to account for the money supply (as it has done before in times of crisis) a doubling or even tripling in the price of gold may be a low-side estimate youtu.be/IHliPYpjBGc. If gold had to go to 18,000/oz in 2018 to account for the money supply - imagine what it will have to go to after the printing presses really get going.,
e. I am not an economist by any means but I suspect that we have more in common with Weimar Germany than most realise - inflation is somewhere in the pipeline - but first massive MONEY PRINTING to "solve" all our problems,
f. In the developing country I live in gold has been setting new all time highs again and again (it waited one whole year after the USD 2011 ATH to set new highs in local currency terms) when you have a weak currency the best time to buy gold is always "right now." Gold isn't gaining in value so much as your currency is depreciating in real purchasing power (which is happening to a lesser degree in the US),
g. After reading Ray Dalio's free e-book about big debt crises I was to hear that 'credit spreads were widening' indicating that credit markets were only now reappraising the previously under-appreciated risks of BBB, BB, and B grades of Corporate Debt. Well I hear that a lot now - Last I heard credit spreads for (non-investment grade) BB debt are 815 basis points (8.15%pa above Treasury yields) which is a "very significant and rapid re-pricing in high yield debt youtu.be/KduP9_lSHcg." But significant credit rating downgrades from BBB (lowest investment grade) to BB aren't expected to be significant according to JP Morgan's Jim Casey - feel better? It doesn't make me feel better. The major driver in the US equity markets has been leveraged corporate buy-backs and any buy-backs from the last 12 -18 months are underwater while costing interest - at a minimum this will cause some pressure on Corporate finances and executives,
h. I heard this last week; gold is unsurance (insurance when you "are unsure what is going to happen,
i. gold IS money,
j. I wanted to diversity out of fiat currency as massive stimulus efforts by central banks will devalue all major currencies (maybe not much in relative terms - but in overall terms),
k. Gold demand set new records in 2019 and gold demand has ALREADY surpassed 50% of the 2019 demand - 2020 is on track to DOUBLE gold demand (this sort of thing is never predicted in advance - and hasn't been) - I read this on investing.com I think but haven't got a link for you,
l. Gold is valued in every culture all over the world and has been for thousands of years, I am sure there are more reasons but I have things to do.
But before I go, I just wanted to mention a predicted, predictable issue with sourcing gold and silver bullion. Yesterday, my bullion dealer significantly raised premiums. The premiums on items I regularly buy were raised from 5% to almost 35% in the course of a day. Right now we have futures prices that have become disconnected from the price of physical bullion. Why? Record demand along with supply chain problems - reportedly "several months" to restock supply minted in China. As Mike Maloney likes to say; buy silver now before it becomes unobtanium and unaffordium youtu.be/SwYhMZ9rX78. He often recounts large time periods during the last major bull-run where silver couldn't be sourced (for any price) and even gold could only be sourced in a minimum of 1kg bars and had zero supply at all for a few days. He also mentioned that premiums went through the roof at those times - so the historical spot prices don't paint the picture. I believe the next few months might even be the last realistic chance to accumulate gold at reasonably affordable levels.
Stay safe everyone.
Why do I expect price drops in the short to medium term?
1. Elliot Wave seems to indicate the ending of wave (3) up, it is always hard to be sure, but anyone can see the three sections of price advance (and two declines) in the last two years,
2. There was rather evident bearish RSI divergence (higher price highs vs lower highs on the RSI) that emerged even before this last weeks price drop - indicating a loss of momentum,
3. A couple of rejections in a row from the USD1700 level,
4. Gold appears to be "overbought" on your technical indicator of choice (and it is hard to afford at the moment - many people will be waiting for a pull-back before buying - many many others can't or won't wait however.
5. Just look back a few years, the same thing happened in 2008, there was a steep decline in the price of gold during the last recession (it still gained 23% over the duration of the recession) because the same circumstances applied - some people were forced to sell due to circumstances - the rest had the ability to hold and also clearly saw the writing on the wall).
Why do I remain long?
1. Let me count the ways.
a.It is the perfect investment vehicle for the moment (uncertainty, money markets, debt markets and supply chains freezing up (bullion cannot get through either)),
b.record levels of open market operations announced by the US fed in the past week (otherwise their 30 year bond issue was going to possibly fail to find sufficient buyers - this should be a major salient red flag: the largest, supposedly most credit-worthy country in the world, was a few minutes (about 20 minutes I think) from having a sovereign bond issuance fail to find sufficient buyers if they didn't announce a new round of quantitative easing),
c. negative real fixed interest yields and the increasing possibility of negative nominal yields (this has changed very quickly from yield increases even mid last year) which mean that the "negative carry" aspect of gold (storage fees and no interest income) is less and less of a factor,
d. If you take inflation into account (let alone the comparably much larger increases in the money supply) gold is still significantly undervalue in real terms - yet $1600 sounds like a lot for just over 31grams of gold but not when you consider how worthless the currency has been made and will continue to become. There is a possibility of gold going geometric a la Venezuela, Argentina, Weimar Germany etc etc - some truly unimaginable gold prices are possible. If gold 'appreciates' to account for the money supply (as it has done before in times of crisis) a doubling or even tripling in the price of gold may be a low-side estimate youtu.be/IHliPYpjBGc. If gold had to go to 18,000/oz in 2018 to account for the money supply - imagine what it will have to go to after the printing presses really get going.,
e. I am not an economist by any means but I suspect that we have more in common with Weimar Germany than most realise - inflation is somewhere in the pipeline - but first massive MONEY PRINTING to "solve" all our problems,
f. In the developing country I live in gold has been setting new all time highs again and again (it waited one whole year after the USD 2011 ATH to set new highs in local currency terms) when you have a weak currency the best time to buy gold is always "right now." Gold isn't gaining in value so much as your currency is depreciating in real purchasing power (which is happening to a lesser degree in the US),
g. After reading Ray Dalio's free e-book about big debt crises I was to hear that 'credit spreads were widening' indicating that credit markets were only now reappraising the previously under-appreciated risks of BBB, BB, and B grades of Corporate Debt. Well I hear that a lot now - Last I heard credit spreads for (non-investment grade) BB debt are 815 basis points (8.15%pa above Treasury yields) which is a "very significant and rapid re-pricing in high yield debt youtu.be/KduP9_lSHcg." But significant credit rating downgrades from BBB (lowest investment grade) to BB aren't expected to be significant according to JP Morgan's Jim Casey - feel better? It doesn't make me feel better. The major driver in the US equity markets has been leveraged corporate buy-backs and any buy-backs from the last 12 -18 months are underwater while costing interest - at a minimum this will cause some pressure on Corporate finances and executives,
h. I heard this last week; gold is unsurance (insurance when you "are unsure what is going to happen,
i. gold IS money,
j. I wanted to diversity out of fiat currency as massive stimulus efforts by central banks will devalue all major currencies (maybe not much in relative terms - but in overall terms),
k. Gold demand set new records in 2019 and gold demand has ALREADY surpassed 50% of the 2019 demand - 2020 is on track to DOUBLE gold demand (this sort of thing is never predicted in advance - and hasn't been) - I read this on investing.com I think but haven't got a link for you,
l. Gold is valued in every culture all over the world and has been for thousands of years, I am sure there are more reasons but I have things to do.
But before I go, I just wanted to mention a predicted, predictable issue with sourcing gold and silver bullion. Yesterday, my bullion dealer significantly raised premiums. The premiums on items I regularly buy were raised from 5% to almost 35% in the course of a day. Right now we have futures prices that have become disconnected from the price of physical bullion. Why? Record demand along with supply chain problems - reportedly "several months" to restock supply minted in China. As Mike Maloney likes to say; buy silver now before it becomes unobtanium and unaffordium youtu.be/SwYhMZ9rX78. He often recounts large time periods during the last major bull-run where silver couldn't be sourced (for any price) and even gold could only be sourced in a minimum of 1kg bars and had zero supply at all for a few days. He also mentioned that premiums went through the roof at those times - so the historical spot prices don't paint the picture. I believe the next few months might even be the last realistic chance to accumulate gold at reasonably affordable levels.
Stay safe everyone.
Uwaga
goldchartsrus.com/newsblog/index.php?post/2020/03/14/Transparent-Precious-Metal-Holdings-Gold/SilverOn this chart you can see the ever-increasing gold holdings along with the steeply dropping "paper gold" price. The disconnect is even greater for silver. Luckily I "bought the dip." before by supplier re-priced all bullion items. My only regret is not adding more.
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