"Everything you need to know about gold"
An analysis of any profit potential in gold requires an understanding of gold and its fundamentals. The problem is that most folks do not understand gold or its fundamentals.
“Most folks” includes investors, traders, speculators, advisors, analysts, marketers, etc.
GOLD PRICE TARGETS
Almost everyone else continues to focus on the next upside leg for gold. In this article I will show some charts that allow for possible downside targets within the prevailing half-century uptrend.
There are four charts. I will provide some commentary after each chart. After that, I will add some final comments. The first chart follows…
GOLD, STOCKS, BONDS, CRYPTO…
Is this the all-asset crash that some have expected? Looks like it could be. Before discussing that, though, let’s look at four charts (source) in sequence: GLD (gold), S&P 500, TLT (long-term US Treasuries), and Bitcoin…
From its high of 193 in early January to its recent low of 168, GLD has declined thirteen percent.
From its high in late December at 4818, to its recent low of 3858, the S&P 500 Index has declined twenty percent.
From its high point in early December at 155 to its recent low at 112, this ETF of long-term US Treasuries has declined twenty-seven percent.
From its high point of just under 70,000 (69,355) in November past, the price of the most-watched crypto currency has declined a whopping sixty-three percent to its recent low at 25,350.
ALL-ASSET CRASH?
Before trying to answer that, there is another question to ask first that will help clarify the situation: Has any asset class or investment been going up lately? None that I am aware of – except energy and food.
Also, being short something is not an investment in a particular asset or asset class as much as it is a speculation on dropping prices. So we can rule out inverse ETFs, put options, and selling short.
We can also rule out real estate which seems to be treading water at best, with the possibility of going under as rates keep rising.
What about silver? I thought you’d never ask. Here is a similar chart to those above; this one is for SLV…
From its 52-week high last June at 26.43 to its recent low at 19.01, SLV has declined twenty-eight percent.
Has anything gone up or at least not dropped recently? Well, yes; commodities in general. This includes primarily foodstuffs and energy which we have already mentioned, and some industrial commodities.
CRB INDEX
Since the beginning of the current calendar year the CRB Index has increased more than thirty percent. That is in direct contrast to nearly everything else we have mentioned thus far.
The index consists of 19 commodities: Aluminum, Cocoa, Coffee, Copper, Corn, Cotton, Crude Oil, Gold, Heating Oil, Lean Hogs, Live Cattle, Natural Gas, Nickel, Orange Juice, RBOB Gasoline, Silver, Soybeans, Sugar and Wheat. (source)
DIFFERENCES AND DISTINCTIONS
When we talk about the financial markets, we are referring to stocks (equities) and bonds (debts). We are also talking about derivatives based on those underlying items, such as ETFs, options, swaps, and spreads.
The financial markets are separate and distinct from the commodities markets. The fundamentals for both markets are different, yet, there are factors which can affect both markets.
The currency markets are also separate and distinct from the commodity and financial markets, although, what goes on in the currency markets can have significant impact on the financial (stock and bond) markets and, to a lesser extent, the commodities markets.
As in the financial markets, there are also derivatives in the commodities markets (options and futures) and currency markets (usually involving currency exchange rates).
FINANCIAL ASSETS ARE OVERPRICED
In the case of prices for stocks, bonds and other financial assets, the recent high prices discounted years of profitability.
Even allowing for a highly generous application of price-to-earnings ratios, prices far exceeded the most favorable expectations for future growth.
The problem is much worse, though, than simple overvaluation of assets. The US and world economies are debt-dependent. The excessive valuations in financial asset prices are the result of an abundance of cheap credit.
Most economic activity is funded primarily by cheap credit; whether it be mortgages, business activity and corporate expansion, or retail consumption. Without access to unlimited amounts of credit the world economy would come to a standstill. The situation is precarious.
A FRAGILE ECONOMY AND A LOOMING DEPRESSION
Some are quick to assume that the Fed will take whatever steps are necessary to arrest the hellish descent. Of course, they will try. But they likely won’t be successful.
We have advanced too far down the path of money substitutes and cheap credit.
Also remember that the Fed is reacting to the effects of inflation and cheap credit which it (the Fed) created. (see Fed Action Accelerates Boom-Bust Cycle)
Whatever the Fed’s intentions are (or were), they caused the Great Depression of the 1930s and the Great Recession of 2008-2010.
The Next Great Depression will be worse and last longer. (Yes, I have said that before.)
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!
ANALYSTS AT GOLDMAN SACHS CAN’T MAKE UP THEIR MINDS
Analysts at Goldman Sachs are now predicting that recession “will push gold to $2,500”. That is an increase of 32% from current levels.
How much confidence can one have in this latest proclamation? Not much; for several reasons.
There are three basic questions that need to be asked, and subsequently answered, regarding gold price manipulation. Here are the three questions:
SOME FUN WITH NFTs
Both my son and grandson collect sports trading cards. I began a group text with them the other day. Here is how it went…
me: Do either of you have any of these in your collection? (I attached a link to NFTs of Rob Gronkowski on OpenSea)
son: Do you have a potato chip shaped like President Lincoln’s top hat?
GOLD GAINS IN PRICE ONLY
It has been said that the more things change, the more they remain the same. That is certainly true of gold prices.
Let’s look at the following three charts in succession. Then we’ll talk about them…
IT’S NOT ABOUT GOLD
There is a lot of talk centering on the US dollar and its “ultimate end as the world’s reserve currency”.
There is also additional talk about what this means with respect to the price of gold, but that is just talk.
The price of gold tells us nothing about gold. The only thing a continually rising gold price tells us is that the US dollar continues to lose purchasing power. (see What’s Next For Gold Is Always About The US Dollar)
IT’S ALL ABOUT THE DOLLAR
As for replacing the US dollar as the world’s reserve currency, is there a better alternative? Below is a chart (source) of DXY (US Dollar Index)…
There is information in the chart above that might change our perception of the current status of the US dollar; namely, the US Dollar Index is at the same level today as it was thirty-five years ago, in 1987.
Also, the US Dollar Index risen forty percent from its low point in 2008.
Now, lets look at the how the US Dollar Index has fared over the past ten years…
In the above chart we can see that the US dollar has risen twenty-five percent since mid-2014 and, looking at both charts, appears to have established progressively higher levels of support at 70, 80, and 90.
US DOLLAR, CHINESE YUAN & GOLD
Now, let’s look at one of the currencies not in the US dollar index. The Chinese Yuan has been mentioned both singly and, along with other currencies, as an alternative to the US dollar. See the chart (source) below…
As China’s role in international trade has grown, so, too, has the attention paid to its currency.
The past couple of years have seen the Yuan strengthen vs. the US dollar but it probably isn’t a viable alternative to the US dollar.
The Yuan has also been suggested as an alternative to the dollar for international pricing of gold. That, too, is unlikely to happen.
Whether it does or doesn’t, though, is irrelevant as far as any expected changes in gold. (see Gold And US Dollar/CNY)
CONCLUSION
The US dollar is the world’s reserve currency. That isn’t likely to change soon – unless there is a calamitous implosion of the dollar. A calamitous implosion implies outright rejection and repudiation.
That could happen, of course. The problem is that there isn’t another currency that could likely take the place of the US dollar. By the time any potential calamity becomes a reality, any possible candidates would likely be in worse shape.
Other alternatives have been suggested, such as cryptocurrencies, but those are not currencies or money. They are processes for the private transfer of money. The privacy feature will not be a factor for very long, either, as governments and regulators continue to speak and act with the intention of exerting control over the processes.
All currencies are substitutes for real money, i.e. gold. And because all governments inflate and destroy their own currencies, the possibility of gold reasserting itself as the international medium of exchange continues to increase.
Even so, a lot of worse stuff has to happen before we get to that point. Governments around the world have too much at stake to capitulate when it comes to ceasing to issue ‘funny money’. (also see Gold And US Dollar Hegemony)
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!