"Everything you need to know about gold"
GOLD – LOOKING BACK
Each year we are treated to calls for gold’s next big move. We heard it last year; and the year before, too. And the year before that. It may not be a broken record , but it is the same song.
Predictions for gold’s price are more than guesses, but they might as well be just guesses. That’s unfortunate, because no small amount of time is spent trying to analyze gold. And it is time wasted.
GOLD NOT AN INVESTMENT
Perception of gold as an investment is fundamentally flawed. No matter the detail behind the analysis, gold is not an investment.
The first gold coins appeared around 560 B.C. Over time it became a practice to store larger amounts of gold in warehouses. Paper receipts were issued certifying that the gold was on deposit. These receipts were negotiable instruments of trade and commerce which could be signed over to others. They were not actual currency but are a presumed forerunner to our modern checking system.
Gold is original money. It was money before paper receipts were issued. The paper receipts were not money. They were substitutes for real money. Today, all paper currencies are substitutes for real money.
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!
GOLD AND USD/CNY
My last article, Gold And The Elusive Chase For Profits/The Case For Gold Is Not About Price, generated the following anonymous comment:
“Gold is now pegged to CNY not USD.”
I responded as follows…
The United States is currently the number one stockpiler of gold in the world with a total of 8,134 tons as of the second quarter of 2018. Since former President Richard Nixon took the U.S. Dollar off the gold standard in August of 1971, stockpiles of gold have grown, while historically, the dollar’s value has generally decreased.
The Federal Reserve has helped cause this erosion in value through less than stellar fiscal policies. One of these is the cancellation of international convertibility of the U.S. Dollar into gold.