Global Market Comments
October 27, 2023
Fiat Lux
Featured Trade:
(SIX REASONS WHY GOLD WILL CONTINUE RISING),
($GOLD), (GLD), (IAU), (NEM), (GOLD), ($TNX),
(A CONVERSATION WITH THE BOOTS ON THE GROUND)
Tag Archive for: (IAU)
If you are a current gold investor, you have to love the latest monthly statistics just published by the World Gold Council.
After years of a death by a thousand cuts inflicted by endless redemptions of gold ETFs and ETNs, recent reports showed a sudden influx into the barbarous relic.
North American ETFs led the charge, with some 28.8 metric tonnes valued at $1.3 billion pouring into the funds.
The SPDR Gold Shares (GLD) took in the most, 22.4 tonnes worth $1.03 billion, followed by the IShares Gold Trust (IAU), which added 4.6 tonnes worth $266 million.
Europe followed with 6.4 tonnes worth $321 million.
Asia was a net seller of 2 tonnes worth $80 million as investors pulled money out of precious metals and placed it in Bitcoin, Ethereum, and other cryptocurrencies.
Global gold-based ETFs collectively hold 2,295 metric tonnes of gold valued at and have picked up 143.5 tonnes so far this year.
For those used to using American measurements of precious metals, there are 32,150.7 troy ounces in one metric tonne.
The figures augur well for continued cash inflows and higher gold prices.
My experience is that sudden directional shifts of fund flows like this are NOT one-offs. They continue for months, if not years.
Of course, the trigger for these large inflows was the yellow metal’s decisive breakout on big volume from a two-year trading range.
Not only did now longs pile into the market, there was frantic short covering as well.
Too many options traders had gotten comfortable selling short gold call options just above the $1,800 level.
Once key upside resistance was shattered, gold tacked on another $50 very quickly. Bearish traders were smartly spanked.
Gold plays that did well, including Van Eck Vectors Gold Miners ETF (GDX), Barrick Gold (ABX), Newmont Mining (NEM), and Global X Silver Miners ETF (SIL), turned profitable.
There are six reasons why gold has gone off to the races.
1) Ten-year Treasury bond yields are peaking out at 5.0%. The opportunity cost of holding gold is about to drop sharply.
2) Falling interest rates guarantee a weaker US dollar, another big pro gold development.
3) The last of the pandemic stimulus is fading fast.
4) The new conflict in the Middle East has poured the fat on the fire.
5) General concerns about the increasing instability in Washington have driven nervous investors into EVERY flight to safety play.
6) The collapse of trust in crypto has propelled a lot of assets back into gold.
Inflation has historically been the great driver of all hard asset prices.
After such a meteoric move, I would expect gold to consolidate here around this level for a while to digest the recent action. It may drift sideways, or fall slightly.
That’s when I’ll pick up my next basket of longs.
Since Ben Bernanke?s announcement of QE3 last week, new forecasts for gold have been popping up like acne at a high school prom. They range from the conservative to the absurd, from $1,900 to $55,000. But they all have one thing in common: higher. Before you head down to the local coin store to load up on bags of one ounce American gold eagles, let me go through the simplest of the many bull arguments.
The most positive interpretation of QE3 is that it will expand the Federal Reserve?s balance sheet from $2.7 trillion to $5 trillion over the next two years. This is up from only $800 billion in 2008. QE1&2 took the Fed balance sheet up by $2 trillion, but the money supply (M0) increased by only $300 billion. Where did the rest of the money go?
The answer is that it went into the reserves of private banks, where it still sits today. When these funds are released, everyone will rush out and buy stuff, and the inflationary implications will be awesome. This is bad news for the dollar. As gold is priced in dollars, it will be the first to feel the impact. Witness the 18% rise we have seen off of the July bottom.
How far does it have to run? The correlation between the price of gold and the broader money supply M1, a measure of the currency in circulation plus demand deposits or checking account balances at banks, is almost 1:1. In 2008, M1 doubled from $800 billion to $1.6 trillion, and so did the yellow metal, from $500 to $1,000. The Fed?s balance sheet is roughly equivalent to M1. So a near doubling of the balance sheet to $5 trillion should take gold up a similar amount. Using $1,720 as the base level before the Fed?s announcement, that takes the barbarous relic up to $3,440 over the next two years.
Spoiler alert! Gold tends to front run the growth of M1. So while we may see a disciplined straight-line rise in the Fed balance sheet as it diligently buys $40 billion a month in mortgage-backed securities, gold won?t be so patient. It could go parabolic at any time. My first target: the old inflation adjusted high of $2,300, which we could see some time in 2013.
The instruments to entertain here are the gold ETF?s (GLD) and (IAU), gold miners like Barrick Gold (ABX), and the gold miners ETF (GDX). If you are hyper aggressive, you might look into 100 ounce gold futures contracts traded on the COMEX. They offer leverage of 19:1, with an initial margin requirement of $9,113. ?If my $3,440 target is achieved, the value of one contract would rocket to $166,800, an increase of 17,300%. But this is only for those who wish to play at the deep end of the pool and are authorized for futures trading.
And then there are those one-ounce American gold eagles, now retailing for $2,300.
Growth of M1 to 2014
One Ounce American Gold Eagle