Fake Currency: Central banks Print money & buy bullion with it

He who trims himself to suit everyone will soon whittle himself away.
Raymond Hull

Fake Currency

Fake Currency

Every major currency in the world falls under the category of fake currency and the reason is simple. The governments print new money whenever they see fit and there is nothing to back this newly created currency other than empty promises.  Let’s look at what impact all this money might have on Gold.

Gold has closed above $1230 and indicating that a bottom is in or that one is close at hand.  The trend has turned neutral from negative thus giving Gold a much-needed boost to potentially test the $1350 ranges. India however, dealt the gold markets a negative blow by maintain the tax on Gold and suggesting that they would increase it slightly.   This development could be overshadowed by a more positive development that concerns central bankers.  Central bankers overall have been purchasing Gold rather aggressively over the past 24 months.  However, the biggest buyers are not from the west; they are Russia, China and Kazakhstan.  Central bankers in the West are embracing negative interest rates with open arms.

Must Read: Achieve Financial Independence & retire Young by not being a Lemming

Central Bankers are loading up on Gold.

Source: www.bloomberg.com

According to the World Gold councils’ report for the 4th quarter of 2015, three factors stood out:

  1. Mining production fell for the first time since 2008
  2. Central bank buying remained strong – up 25% from Q4 2014.  Q4 was the 20th consecutive quarter of net purchasing by central banks.
  3. The ETF market saw a slowdown in outflows: 133t in 2015, compared to 185t in 2014.

Euro and Dollar

The trend in the Euro has turned neutral from negative and until it turns positive, all rallies are destined to fail. The Euro and Gold tend to trend in the same direction, and as the trend in the euro is still neutral, we have to assume that Gold will start to face some headwinds soon. However, there is a silver lining; Gold and the dollar have trended in unison in the past and hence a weak euro does not mean that Gold bullion cannot continue trending upwards in the face of a stronger dollar.

The trend in the dollar, on the other hand, is neutral, but not too long ago it was up (bullish), and until it turns negative, the outlook favours a resumption of the dollar bull.

Negative interest rates major hurdle for Gold

Negative rate wars have started and in such a low-interest climate Gold does not tend to fare well, so it will be interesting to see how Gold holds as the negative rate wars gain traction. The action looks promising so far as Gold is holding up well and several Gold stocks have experienced strong moves. Here is a list of the top 10 stocks in the Gold market based on price action. 

TOP Gold stocks 2016

Lists such as these can be useful as you can see how the stocks hold up when Gold bullion pulls back.  The top players will shed the least and vice versa.

Gold Update August 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.

Please all, and you will please none.

Other articles of interest:

Achieve Financial Independence & retire Young by not being a Lemming  (March 9)

Fed Will Shock Markets; Expect Monstrous rally in 2016 (March 6)

How to Profit from Misery & Stupidity (March 4)

Religious wars set to Rip Europe Apart  (March 4)

Oil prices: bottomed out or oil prices heading lower (Feb 28)

Fake Currency and currency wars