"Everything you need to know about gold"
Kelsey Williams When will people wake up to the fact that investing in gold mining shares is not a good idea?
What are the experts seeing and thinking when they talk about the “positive outlook for mining shares”? For the life of me, I just don’t get it.
And, as far as gold stocks outperforming gold, well, just forget about it.
When government (or a President) claims that Federal Reserve policy is hurting the economy, they are either grandstanding, or are ignorant about the function and purpose of the Federal Reserve.
No one wants to see the economy suffer, anymore than they want to see a plague, or infectious disease, affect millions of people. And no President wants to be in office to preside over a recession or depression. But neither can they exercise any power or influence regarding the implementation of Fed policy; particularly when it comes to interest rates.
TARIFFS AND TRADE WARS…
Here is an article that explains some of the negative effects of tariffs. Any possibility of seeing the incarnation of free trade and common sense economic policy is out the window for now. As long as countries continue to act like immature school kids, the house is in danger of burning down.
We know that inflation is the debasement of money by government. The effects of inflation show up in the form of rising prices over time. The rising prices are a reflection of the loss of purchasing power of the currency involved. For our purposes, that means the U.S. dollar.
The chart below depicts increases in the Consumer Price Index, year-to-year, dating back to 1914…
FEDERAL RESERVE AND MARKET RISK
Analysis and opinions of the financial markets vary depending on who is doing the analyzing. The most critical element that affects the song is the singer.
There is nothing wrong with that. But we should be aware that our own prejudice clouds our perspective. However, there is more that is not so obvious. With that in mind, lets take a look at things.
Today, more than ever before (at least it seems that way), focus is on the Federal Reserve. Even economists and the general public have joined the throngs of interested observers.
Stocks and bonds fell significantly over the past several days, partly in response to statements by Chairman Powell. The Chairman’s remarks indicated the intention of the Fed to continue its push to raise interest rates more aggressively, and without seeming regard to any deleterious effects on the economy and the stock market.
So, we hear criticism that the Fed is guilty of policy error. “The Fed needs to be more accommodative at this time.” Maybe; maybe not.
One of the earliest articles I wrote was “A Loaf Of Bread, A Gallon Of Gas, An Ounce Of Gold”. The information contained in the article is basic to a fundamental and accurate understanding of gold.
The convolution and complication of basic fundamentals reigns supreme in almost all analysis of gold. That is unfortunate, because it obscures the simple truth.
The simple truth is that gold is real money. Even that simple truth, however, deserves some further explanation.
Most technical analysis of gold boils down to “what the charts tell us about gold’s next move”. The next move according to most seers of the trade – is “imminently bullish” and represents one, last chance for investors to save their financial souls.
The problem is that more people have lost more money by ‘investing’ in gold upon the advice of those who proffer it, than will likely ever be made up going forward.”…Kelsey Williams
There are several reasons for that.
It is very difficult to let go of someone – or something – when we have invested so much time and energy in it. It is even harder when we have invested so much of ourselves in it; when the outcome is not what we expected; when our reputation is at stake.
In this particular case, that something is gold and silver.
The emotional proclamations just a few weeks ago seemed quite strong, almost being religious in their fervor. But after two thrusts of the dagger to the heart, the explanations afterwards seem a bit hollow.
GOLD AND US DOLLAR
“Even in the U.S., where the wish for a stable currency is strong, the dollar has fallen a staggering 86% in value since 1965, when I took over management of Berkshire…” — Warren Buffett Feb2012
During that same period (1965 – 2012) the price of gold increased from $35.00 per ounce to more than $1800.00 per ounce – a whopping 5000%.
A wakeup call can seem like quite a jolt when it happens, but, usually, we are grateful for it. And even if we didn’t ask for a wakeup call, it can still prove fortuitous. Maybe this will be the case for some of you when you read this.
If you are a long-term holder of physical gold for the right reason, i.e., ‘gold is real money’, and you understand that gold is not an investment, and you are not currently speculating/trading gold with short-term objectives for higher prices, then this could be a benign event for you.
If, on the other hand, you are an ‘investor’, trader, or speculator with expectations for higher gold prices; if you are a long-term investor who is overcommitted to gold financially and emotionally; if you are still waiting for the impending ‘moonshot’ that will bring you wealth untold; if you would like to spare yourself some unnecessary remorse; then you might want to continue reading.
After recently perusing some gold charts for some historical perspective, I was relatively nonplussed; but continued my search. When what to my wondering eyes should appear…
The above chart is a 5-year history of gold prices (inflation-adjusted) from August 2013 to August 2018. As you can see, it is not a pretty picture.
Below is the same chart without the inflation adjustment…
After looking at both charts, there are a couple of differences that are apparent:
1) the overall result of the price action for the entire period is a loss of slightly more than three hundred dollars per ounce on an inflation-adjusted basis; the second chart’s nominal amount is less than two hundred dollars per ounce
2) a break below $1200.00 per ounce would be a clear violation of the pattern of successively higher lows since December 2015 when viewing the inflation-adjusted chart; the pattern remains intact on the second chart even if gold were to break below $1200.00 and go a bit lower
What is clear on either chart is that gold has broken below a line of support dating back to its price-point low in December 2015. Maybe just as important, the price of gold has been held below a declining line of overhead resistance going back five full years.
How low can gold go? A lot lower than most want to admit. Under reasonably normal conditions, my guess would be $850.00-900.00 per ounce. ($850.00 was the January 1980 high point.)
There is the possibility that it could go lower, too. Or, it might find a floor at $1000.00 per ounce. There are several scenarios but there is only one thing you need to focus on – the U.S. dollar.
If the dollar heads lower and accelerates its long-term decline, then the price of gold will reflect that by moving higher. If, on the other hand, the dollar continues to stabilize and strengthen, then gold’s price will reflect that by continuing to move lower.
It IS that simple. (also see The Case For Gold Is Not About Price)
Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!