Why Gold?
Tensions of all sorts are on the rise in the US , EU, and globally: Covid, employment, fiscal stimulus China (military and economic), and massive increases in money supply by the central banks, especially the Fed.
Cup and Handle
The Cup and Handle is a technical formation. A handle is formed on a pullback before the pattern blasts higher.
Of course, there may be no handle. Gold may just blast higher (or collapse) but fundamentals suggest higher, perhaps after some consolidation.
Gold vs Faith in Central Banks
Gold does worst when faith in central banks is the highest. Greenspan’s great moderation is the best example. Greenspan was considered the great “Maestro” who could do no wrong.
That theory crashed to earth in the DotCom bust. We have now had 3 major economic bubbles in 20 years.
If you currently have any faith that Central Banks have things under control, then please explain where you got that notion.
It should be obvious that the Fed is boosting financial assets but that is not going to create jobs or cure covid.
In short, the Fed is blowing bubbles, many believe on purpose, and gold has responded to the stress.
I do not see a reversal in Fed policy. Do you?
Mish
Mish, I remember a frequent poster you had about 11-12 years ago, back in your js-kit days, going by the name Gaudia Ray. He called the 2008 collapse with enough timing to seem like he had a crystal ball. He also was big on silver, but bigger on gold. He said he would need all of the space to in his Suburban to carry $1,000,000 in silver, but only a briefcase to carry $1,000,000 in gold. He also said something that seemed very strange at the time – he had a business manufacturing certain specialty woven fabrics and expected to make a huge amount of money off of it via government contracts.
Lots of bubbles around, at some point there will be a bubble in gold too, no doubt about it. Just may not be this year as many are expecting and hoping.
The “bubbles” are packs of rats scrambling on the decks of the Titanic to be higher than everybody else, as we sink into the icy waves of the anti-roaring, positively-sucking 20’s. (Mixed too many metaphors?)
Gold someday will become the BIGGEST bubble ever. But we are still far from that.
I fully expect the effects of the Gold bubble to be even more ruinous than the stock bubble.
I am very far from an economics expert, and terminology is tricky, but I thought gold is money, not currency?
“Gold is money, everything else is credit”
“Good money is gold, bad money is currency”
Or is it that “Money can be currency but currency is not money”
I would say currency pertains to a particular country whereas money is a generalised term which can be used anywhere. So yes Gold is money -:) and currency.
It is a store of value (money) in any form and in some cases can be a currency (ie, coins). However, who would exchange their gold coins at face value? A gold certificate would be a credit.
Hui generally acting well but not today
When miners underperform the metal – generally not a good sign.
Good point Mish. In recent years whenever a rally brings out gold bugs and bullish sentiment the rally has ended. On a more bullish note, this weeks Economist cover story “Free Money When Government Spending Knows No Limits”. Look forward to reading it…
It is 1 day mish. Not a persistent divergence. Probably some automated systems sold gold stocks.. Gold royalties and some miners recovered nicely into the close (RGld, AUY, etc)
The stock market is a better indicator of the market’s faith in Central Banks.
Mish wants to have it both ways.
ridiculous
The stock market is a measure of sentiment towards stocks.
Gold is a currency
Gold is my biggest allocation, but how many people are really using Gold as currency?
Just because I think something to be so, does not mean it is. Tesla is junk IMO, that however does not compute for most people.
I think the Dow to Gold ratio will get to single figures one way or another, which given your prediction of Dow at 50 million puts Gold at over $5million. -:)
At some point in the future I expect to be informed by my bank they’ll be charging me interest on positive balances. Some are already doing it for Euros. I wonder what Gold will cost when they start doing it for Sterling & Dollars.
All time high? Wasn’t it around $2246 in 1980? Inflation adjusted that would be $7,026.85 today.
Yes, my mistake – SDR BUG is correct I was looking at a chart that already had inflation adjusted numbers.
My big question is- if the market pulls back substantially will it suck gold and silver with it?
In the short term yes for liquidity reasons
Margin calls are a bitch
Mish and others, 2 questions. (1) If gold will do well, do you think gold miners will continue to do well as well. In theory they should make more profit off of their activities making their stock more attractive. (2) Silver has a lot of industrial use, but a lot of people still see it as a monetary metal and the average Joe can see themselves buying a bigger amount than they can of gold. Should silver see benefits from this as well?
Silvers been doing better than Gold lately. A good report here.
And after Covid-19 ends gold is going back to place it started. Gold is not a flight to quality but a flight to safety.
Not necessarily. I suspect we are looking at ZIRP for the foreseeable future. Gold prices may hold up as long as interest rates are low and government debt levels are high. Don’t see either of those changing any time soon.
“Gold Has Only One Resistance Point Left: The All-Time High”
Gold is at all time highs in every currency except the US dollar. Hard not to believe new All-Time Highs for the US dollar not far away.
“I do not see a reversal in Fed policy. Do you?”
With respect to interest policy, Im tempted to use a quote someone said with a twist. Instead of saying “not a financial crisis in our lifetimes”, Im wondering if “not an interest rate increase in our lifetimes” is the reality.
US debt currently federal debt is $26 trillion, probably 35-40 trillion by 2025. Every country in the world is awash in debt and climbing. Not sure what the end game is here but wondering if interest rates will increase in my lifetime??
Look at Japan rates over the last 30 years and that will give you and idea of what will happen. The true cost of creating money is near 0. Why not pass that cost on to anyone who can breathe.
A good rally so far, though gold bugs showing up in the media and headlines about the rally have me guessing we will see a pullback soon. In order for gold to take out $2,000 it will need a push, like the Fed ramping up its balance sheet and/or hostilities w China and Russia heating up. Overall, I think the next 5-10 years will be favorable for the metals. Negative real rates for the foreseeable future, more asset managers recommending exposure and T$ deficit spending long term (especially when DC starts bailing out the private and public pension funds).
“I do not see a reversal in Fed policy. Do you?”
…
When all you have is a hammer …
Anyways, when was the last time a politician / public official in public comments say … “uh, there is nothing more we can do … we did our best …”
The public demands DO SOMETHING.
And “something” they’ll do … hammering away with more QE … and NIRP.
Yep. We will see 1% mortgages soon.
That is not obvious to me. Doesn’t it depend on whether or not there is a tidal wave of defaults due to people being unable to pay, or are you suggesting that banks will allow everyone to refi with 1% NINJA loans to keep the Monopoly game going for one more round?
Honestly, it wouldn’t surprise me at this point. Not expecting it to be sure, but who knows how desperate the-powers-that-be will get.
Global fiat will be printed like crazy when the next shoe drops. Quick rip here, But after that gold may be dragged lower on a selloff if it gets as deep as I think it may later in year. Then it will really fly after that. Inflation will be an issue for first time in 40 years mid decade