Gold Bull Market
The comments below were published in Nov of 2003. Gold took as projected and then topped off in 2011 as we predicted it would.
Gold bullion really looks like it is in a super bull market when one looks at it in dollars, but take a look at gold in other currencies and you see the makings of the “coming world currency crisis.” What we are witnessing right now are just the first rumblings of this huge major upheaval that is slowly taking place. The mighty dollar has been dethroned and the other currencies are just providing temporary safe havens as the rats jump from one sinking ship to one that has only sprung a leak, but is rapidly filling up. The end will not be pleasant as every major currency starts to collapse.
Gold will ultimately rally in every major currency. That will be the time we will have a feeding frenzy in Gold Bullion and Shares. And at the same time, we will slowly be leading to the panic stage where gold will start truly taking off. It will not be unnatural towards the end to see spikes of $100 or more day. I am going to put all the charts of the weak currencies first. Surprise, surprise! Gold is gaining value in all the major (weak) currencies of the world to date and losing value in the smaller stronger currencies.
So whats the Outlook for Gold in 2019?
Before we get to that, let’s take a look at what John tyler and George Paulos had to say on Gold back in Nov of 2003.
Commentary from John Tyler 2003
I would like to throw my support behind Sol; you’d better listen, or the golden opportunity of a lifetime will be missed.
We were out fishing the other day, and my mate Nifty Neville the plumber was quizzing me on investments as we toiled in piscatorial heaven, dragging the next few days dinners from the ocean bottom. (Nifty Nev inspired me to write The Nifty 50 Trading System he was about to spend $8000 on a black box system that promised immediate fortune. This mob went out of business the next month).
The advice always goes both ways, and Nifty Nev gave me his spiel on the stupidity of buying gold. He told me how twenty years ago, one of his workers bought a miniature gold ingot and wore it on a chain around his neck. He had bought it at the top of the last Bull Run when gold hit $800 an ounce.
Nifty Nev was right and wrong. Timing is crucial. Don’t get caught buying at the top!
There are multiple forces at work that are combining to produce a typhoon of gold speculation:
Gold will rise in value across all currencies and will become the only money of value Inflation will become more apparent in everyday prices of consumer goods All the big miners will have few hedged forward positions. Barrack is now unwinding its huge forward hedge book. This has acted as a pressure release valve on any of the recent gold runs. This will be gone.
Big new gold discoveries are harder to come by. Miners are going deeper.
I could continue, but there is still a nasty fish infestation for Nifty Nev and I to work on. As we were pulling in the lines, Nifty line when taught. The reel screamed. An 80 lb. Line was snapped as if it were gossamer.
Gold is the big one; don’t let it get away.
Commentary from George Paulos 2003
In the US, it is clear that gold is trending up and has been in a bull market for close to 3 years. However, the technical picture is less clear when measured in international currencies. Like most commodities, gold is priced in dollars on international markets, but many currencies are now appreciating against the dollar. This makes gold investing less profitable to investors living in countries with strong currencies.
Sol makes note of the strength in the South African Rand. This has implications beyond just the price of the metal in that country. A quick look at the major South African gold stocks (DROOY, HMY, GFI) shows that they have dramatically underperformed the North American shares over the last year. The strong Rand pushes up costs for SA miners and hurts profitability; therefore those stocks have been hurt as a result. The lesson here is that gold mining stocks benefit when the host country’s currency weakens. Countries that have big exports of commodities will probably experience stronger currencies. This makes US gold mining stocks more attractive and gold mining stocks in commodity exporting countries less attractive.
I agree with Sol that all currencies will ultimately weaken against gold.
All global currencies are now fiat. That means that no currency is convertible to a fixed quantity of gold or any other commodity. This makes it easy for governments to manipulate currencies. It is often in the interests of exporting countries to have weaker currencies in order to sell their products at a relatively lower cost with respect to competing exporters. This leads to a competition between countries to depreciate currencies at an ever-increasing pace in a race to the bottom. This is known as a beggar thy neighbour policy. The net result of these competitive currency devaluations is a general rise in commodity prices. Gold gets a double boost in this situation because it is both a commodity and a currency. Private investors will likely rush to gold to protect their purchasing power.
There are two possible scenarios that could cloud the picture for gold, however. One would be a general trade war with competing countries erecting trade restrictions and tariff barriers. We are already seeing some of this happen with the Bush Administrations steel and lumber tariffs. If this escalates, it could create a global recession that might actually collapse commodity prices as trade declines. Another scenario where there are widespread defaults on private debt obligations would also create a recession and a possible decline in commodity prices. Gold may or may not do well under those circumstances.
As all countries crank up the currency printing presses in a vain attempt to fight the effects of global overcapacity, I believe that we will experience both inflation and deflation simultaneously as a result. Inflation will likely raise prices of commodities, energy, and the other necessities of life. Inflation in these items will cut into disposable income and cause deflation to continue in manufactured goods and may spill over into debt-financed goods such as autos and homes because of the resulting cash crunch. Gold will almost certainly do well under these chaotic circumstances as the traditional safe haven against uncertainty.
Gold Bull Market Update Aug 2019
We have a bullish MACD crossover on the monthly charts, and for the first time years, the trend is mildly positive. Now if Gold manages to close above 1500, then a test of the 1800 ranges with a possible overshoot to 1920 is likely. Silver is a laggard, and it will only start to take off after the action starts to heat up in the Gold markets, but Silver is likely to outperform Gold Bullion in percentage terms. The pattern (currently) is stronger for Bitcoin than it is for Gold; however, things could change fast. In the short term time frames though Bitcoin investors should consider waiting for Bitcoin to let out some steam before deploying new capital.
When it comes to Gold stocks, GFI looks interesting, and it is also the fourth-strongest stock in the sector in terms of relative strength. Entry points in the 4.50-4.70 ranges would be a good place to establish a position.DRD is another interesting play, albeit one that carries a bit more risky due to its volatile nature, and it would make for a good long in the 2.90-3.00 ranges.
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