There have already been a couple of occasions this week where gold has been sold off to the extent that the price of gold has fallen below $1250, but on each of these, it has bounced back during the trading day to higher levels. At the time of writing it has just breached $1260. Conversely silver has remained above $18 and the Gold:Silver ratio (GSR) has fallen from around 71 only a week or so ago to well below 69 – we anticipate it falling to 65 or below during the year as the gold price increases and the silver price increases at a higher rate which it tends to do in a rising gold price scenario.
Despite Leading Indicators, Gold Remains Strong
What is remarkable about this is that it has all happened at a time when extraneous factors would seem to militate against gold market strength. The Fed says it is on course to continue to raise rates; the major analytical consultancies, which have all issued their first 2017 reports in the past week, see gold supply as being in surplus this year; demand in China and India (the two major global gold consumers by far) seems to be pretty dismal; global new-mined gold production last year continued to rise, albeit only by a small amount, belying the data suggested by those reckoning peak gold is already with us. U.S. equities remain strong, although an increasing number of pundits appear to be calling a top – to be followed by a crash – but they have mostly been saying this for the past couple of years so their warnings have been falling on deaf ears perhaps until now. All this would suggest that for a normal commodity, the price would be extremely vulnerable to a sharp fall – but then gold is no ordinary commodity – and silver tends to ride on gold’s coattails.
Gold, Fiat Currency, and Global Debt
Gold is money – whatever its detractors might say. It is regarded as such throughout the world. It has been instilled into the psyche as such from one’s mother’s knee – even in the Western, perhaps more gold-agnostic, world. It is the anti-dollar, or rather anti-fiat currency, and given the huge levels of national debt all around the world - exemplified by a US figure of around $19 trillion – perhaps the world is beginning to realize that something has to give – and soon. Servicing the vast swathes of debt is debilitating economies and one can’t just continue adding to the money supply via the printing presses to alleviate this. There’s no such thing as a free lunch the saying goes.
Plenty of far more knowledgeable analysts than yours truly are noting that the world is beginning to stop buying US treasuries and the dollar, and the dollar is beginning to be sidelined as THE global reserve currency. Trade deals are beginning to be settled in yuan and rubles and other currencies than the dollar and some analysts see this as the beginning of the collapse of the dollar and its purchasing power. And if the dollar falls then gold rises, at least in dollar terms, as the yellow metal does its job of wealth preservation as it has done over centuries.
Outlook for the Price of Gold and Silver
Some big names have been predicting $2,000, $5,000 or even $10,000 gold. They will probably all be right – over time. But $2,000 gold is realistic and in sight and could well occur within the next year or two if, or rather when, the financial sector and the general public start to become aware of the smoke and mirrors holding up the equities markets, and the dollar. This may already be happening, but at the moment it is only a trickle as seen by the flow of funds into the gold ETFs (GLD – the biggest gold ETF has added nearly 23 tons so far this year). If this trickle starts to become a flood, then watch out – gold could begin to take off exponentially.
However, the financial elite also recognizes that the gold price is also perhaps the ultimate measure of confidence in the US dollar, which is why there appears to be continuing moves to suppress the dollar price of gold. If the gold price goes through the roof it is a sign of a drastically weakening dollar, so the ‘Establishment’ tends to try and suppress the price, either through rhetoric, or through direct action, which is why it is so hard to predict forward gold prices. In the writer’s view, which admittedly is not the view of a number of other commentators, current financial and geopolitical trends suggest gold should already be far higher than it is at the moment. Today, it has been testing the $1260 level despite moves to cap it at around $1250 or drive it lower. People are beginning to lose confidence in the dollar and appear to be moving into gold, either into ETFs (GLD added 4.44 tons yesterday for example) or by buying bullion in the form of bars and/or easily tradable gold coins – notably American Eagles and Buffalos, Maple Leafs, Britannias, Krugerrands, Philharmonics, etc. on the coin front, all of which are available in various ounce and/or metric sizes and are easily tradable, or certified gold bars in various sizes – one, or fractional, ounce bars are popular in the USA and UK and metric sizes popular through much of the rest of the world. There is, of course, the problem of secure storage of gold bars and coins, but many prefer to hold bullion in coin or bar form rather than ETFs as the former carries no counter-party risk.
Vulnerable Equities and Lack of Confidence in the Dollar Make Gold a Strong Move
Gold and silver are both known as safe haven investments – in other words, over time, they tend to protect one’s wealth against declines in equities and currencies, but even so, timing of a precious metals investment can be paramount in whether it can succeed in doing that particular job well in the short to medium term. On that basis now could well be a time to buy. Equities markets look particularly vulnerable – as do currencies with the amount of debt prevailing. The odds would seem to be that these are both set to implode over the next couple of years and gold and/or silver investment could well be among the best ways of riding out the storm.