Gold Does Not Shine; Consolidation of Your Answers

Dear Ladies and Gentlemen

Gold continues not to do what it should have done in the face of high inflation and low interest rates, namely to rise. You know, I think the rift is across the commodity market (i.e. oil is rising, iron ore is falling). So anyway, let us see what the other readers concluded.

Contributors

Before getting into it, I have received so many emails with your ideas about why gold is not moving in the direction most of us think it should that I was almost overwhelmed. If I do not list all of the responses and ideas I received, it is by no means because I think they are not worth publishing but because I had to make a selection to keep my weekly short and snappy. First, however, I am happy to thank Gilbert (an old friend – we have been going back almost 40 years), Ramon, Thomas, Mike, Marco, Bob, Patrick, Adrian, Peter, Mark, Robert, Richard, Arnd, David, Jan and others. Thank you very much indeed for sending in your thoughts.

Consolidation

As promised, I have consolidated your answers to why gold does not shine; please enjoy the read:

«Everything in life relates to confidence or the lack of it. Right now, there is still much confidence in central bank policies all around the world. However, once confidence starts to wane, things will change. Unfortunately, this can take longer than most are willing to wait for.»

«The world is different today from what it was 50 or 100 years ago, and crypto may be the new, new thing. Nevertheless, I doubt and subscribe to the words of John Paulson in a recent interview: crypto is a limited supply of nothing!»

«I see gold as an insurance policy and do not imagine the house burning down.»

«Consolidation phase, lack of investor interest, risk of rising rates.»

«Crypto takes the money from gold. Gold is archaic to the young. Analog. Another blank stare inducer.»

«The environmental ESG threat to miners is frightening. The jurisdictional threats are frightening—no such thing as Tier 1 jurisdiction. Look at Newmont tweets. All ESG. They are running scared.»

«Best macro conditions have peaked. Jubilee, forgiveness will not matter.»

«If the U.S. wanted to maximize its gold holding by a higher reset value, why have they not hinted at it. They are hostage to their dollar.»

«Jewellery will be replaced as India, and China etc., go all CBDC digital, probably outlawed.»

More Views

«Gold will not shine until the downfall of the monetary system, first of all, the USD, and the situation must be clear for all society.»
«Those of us who have been through the ups and downs of gold over many decades know that timing the moves in gold price is not easy, even when the odds are stacked in its favour as is the case at present. We are experiencing a market dominated by excess liquidity arising from artificially low interest rates and profligate monetary injection. Ultimately this will flow through to a higher gold price, but in the meantime, there is easy money to be made for investments in passive equity plays, which have benefitted from an enormous, artificially created bull market. The technicals currently suggest that the major US markets may still have some upside left, although the last few days may signal the beginnings of a correction. If so, gold will likely be sold down temporarily to address margin calls. Nevertheless, bullion and gold stocks will ultimately take off when investors recognize how grossly overpriced the major share markets have become. The trigger may be tapering or some other announcement signalling that the game is over. Gold will then resume its safe-haven status as a repository of wealth and will rise to new heights. This could be soon, or we may have to remain patient a while longer.»

«It is a story about fiat money. So many people take the fiat money to save and forget everything about real money like gold.»

«The end game for fiat currencies is when the central bank loses control either of interest rates or inflation. Undoubtedly, economically sensitive commodities will correct sharply—volatility is endemic to inflationary economics—but consumer inflation seems to have well established itself with no end in sight. This makes the real interest rate ever more negative. The Fed will have to choose whether to raise rates to chase inflation, and risk market instability, or sit back and watch the dollar implode.»

«Gold is performing bad (relative to other assets and based on the economic situation – raging inflation everywhere) because, obviously, a majority still trust FED that they will do their „magic touch“ once more to the markets. Remember, in past years, things looked quite desperate, yet somehow FED always managed to cheer up the markets.» 

«The FED is out of proper tools now. So, as they still have many tools in their box (e.g. yield control), none of them is non-inflationary (as they were in the past). So whatever they will be doing, as is already the case, just the market does not understand yet; they are/will be just pouring gasoline on the fire of inflation. Markets also do not understand there will be no tapering (maybe just a try), even less any of the interest rate increases, as they can not lift them because of too much debt in the system (consumer loans, company debt, zombie companies and U.S. government debt itself). There is no way that gold will not go up and silver with all of its industry usage (e.g., E.V., solar).»

Further Thoughts

«Based on much technical analysis, we are not far from the end of it; maybe we will get a final „dip“ to around $1675. But, moreover, more thing – with every low, we are closer to higher high.»

«We are in a retail-driven mania, where flows are the mover, and fundamentals (and risk) almost do not matter. I am not much concerned about the long-term outlook after the mania recedes. The tough questions I am pondering about is:

– In what stage of the mania are we (before it crashes on its weight)?
– Will that general crash first inflict a big wound on gold and gold stocks, or will it be overall positive?
– What happens with the price of gold in the run-up to the crash?

It will be a gradual bear market, then good for gold, but a sudden big crash might be devastating for gold for some time. That is why I find the a) question important. The longer the mania lasts, the bigger chance of a big crash as opposed to a gradual risk-on unwinding. This results in the decision if it is good to hold gold from now on, or wait for the opportunity to buy later at depressed levels.»

Ladies and Gentlemen

As always, please share your opinion with me, but please do not forget (instead of hitting the reply button) to send your messages to: smk@incrementum.li

Many thanks, indeed!

I wish you an excellent start to the day, a wonderful weekend, and above all, good health!

Yours truly,

Stefan M. Kremeth