There’s no reason to be put off by gold’s steady decline this year so far. Talk of a “death cross” leading to a big selloff is misleading – and staring at short-term paper manipulation while remaining blind to the medium-term geopolitical shift in currency power. I intend to wait a little longer before buying some bullion, but I will be in big time at some point this year. As always, I must stress that what you do is your business, and this piece does not represent a professional recommendation.
Last Friday afternoon EST, gold futures were trading around $1252.80. The sector opened the previous Monday at $1,272 per ounce. That adds up to a week on week decline of twenty bucks. The markets are not seeing a bright future for gold.
Further, for the first time in a while the 50-day moving average went below the 200-day number. This is traditionally called the “death cross”, allegedly signalling a longer-term (and far more substantial) correction downwards in the price.
However, the gold market has not been “real” in any meaningful sense since the last century; look at the data, and the death cross (like the Baltic Dry) looks less of a rule and more of a shibboleth these days.
In the last five years, there have been four death-cross moments. Two prefaced a selloff, and two a new high.
For me, the medium-term point is this: never in recorded history have so many currencies been so devalued, so many economies dependent on consumer debt, and so many investment sectors shown ridiculously high valuations based entirely on cheap, paper-currency stimulation.
The best (albeit sprained) analogy I can offer is that at present we’re in a sort of late 2007 position, but as that correction was neither addressed diligently nor treated by effective legislation, Crash2 is going to be much bigger. I still expect it to take stock valuations, for example, back to 1998 in real terms.
On the global debt/printing dimension alone, therefore, we are close to the right aperture for a big, longer-hold investment in gold.
But at a higher level, there is a unique geopolitical currency shift in progress. And to my mind, that makes gold a must-buy.
I have a problem at the moment (as quite a few people with a private pension do) in that it is a SIPP, but not exposed to the markets. I’m not unhappy about that, but within the next eighteen months – if the overvaluation madness continues – it will reach the point at which I have to get some growth for it. What’s more, while it’s “ringfenced” at a bank, once the rustlers get started, every fence will be trampled down and every good horse stolen.
I’ve been corresponding with a metallurgist contact about this in the light of gold in recent weeks. Yesterday, he alerted me to something involving pensions and gold….but on a massively grander scale than little ol’ me.
The Swiss government Pension authority decided over the weekend to sell 700 million Swissies worth of paper gold into bullion and store it in Switzerland.
This tells us three things, albeit on a small scale so far – but the Gnomes don’t want to create their own gold bubble, so that makes sense:
First, they have no faith in gold trackers’ willingness to pay up when gold finally does go ape.
Second, they’ve seen how the US has screwed the Germans over their gold holdings, and they thus have doubts about what’s really in Fort Knox apart from 10 trillion packs of Benson & Hedges gold filter packs.
And third, their overall Weltanschauung is now so cautious, they’re embarking on the quiet process of having the national pension fund in gold within their own frontiers. Pensions are, fundamentally, about long term growth.
I refer to gold as a medium-term hold purely because the central banks don’t want every Tom Dick and Ivan buying the real thing – thus putting pressure on sovereign debt management and economic growth as richer people store physical, avoid government paper and consume less stuff. I wouldn’t give it longer than twelve months following a bullion lift-off before the commercial trading of gold is banned worldwide.
Longer term, for me it will make sense to get early into silver: first up, it’s a relatively low unit price, and second it is much less likely to be controlled or stopped by panicked central bankers.
But there’s more to this than stock markets and pensions. The Big Thing the Swiss are saying here is that the futures market for US Dollar power and value is the biggest source of caution. And moves like this inevitably become self-fulfilling as more people jump on the ‘Global Balance’ bandwagon as a bulwark against American world hegemony.
There is no doubt that the Chinese (probably in cooperation with Moscow) now want the Yuan to be an alternative reserve currency to the Buck, and also a powerful competitor to the Petrodollar. They too have vastly increased their stores of real gold in recent years (not a little of it from South Africa), and the Russians now have even more physical gold than Peking. After adding 6.7M ounces (208 tonnes) of gold to her reserves in 2015, the Russian Central Bank added 6.4M ounces (199 tonnes) in 2016 and another 224 tons (7.2M ounces) in 2017.
The concern for the indebted élites at the bottom line is Sovereign debt, and the cost of maintaining the yield payments over time. This will mean frantic printing of the major Western currencies, which will only exacerbate the problem through hyper-inflation. And for Third World debt, being denominated in either Dollars or Yuan is going to be a fiscal disaster….as Argentina is already demonstrating.
So precious metals represent relative safety on several bases. But lots of people in the West – self-styled important people – would love to know how the Yuan/Rouble currency strategy (alongside building stocks of gold) will be geopolitically leveraged to control the growth and growth of US power.
As I have opined many times before, Washington’s ability to pursue a long-term neocon foreign policy has to be seriously in doubt. Donald Trump will ignore it in 2020, because he intends to be the Good News Boy in election year. But after that, the global hegemony aspirations of the US Alt State are doomed.
This is not, in my opinion, going to make the world a safer place while such a tectonic shift is taking place.