Global Market Comments
October 25, 2018
Fiat Lux
Featured Trade:
(THE LAZY MAN’S GUIDE TO TRADING),
(ROM), (UXI), (BIB), (UYG),
(THE NEXT THING FOR THE FED TO BUY IS GOLD),
(GLD), (GOLD), (GDX), (ABX), (NEM)
Global Market Comments
October 25, 2018
Fiat Lux
Featured Trade:
(THE LAZY MAN’S GUIDE TO TRADING),
(ROM), (UXI), (BIB), (UYG),
(THE NEXT THING FOR THE FED TO BUY IS GOLD),
(GLD), (GOLD), (GDX), (ABX), (NEM)
Global Market Comments
April 3, 2018
Fiat Lux
Featured Trade:
(TUESDAY, JUNE 12, NEW ORLEANS, LA, GLOBAL STRATEGY LUNCHEON),
(MARCH 28 BIWEEKLY STRATEGY WEBINAR Q&A),
(TLT), (TBT), (FXY), (GS), (FCX), (CSCO), (INTC), (NEM),
(RIGHTSIZING YOUR TRADING)
I have not done a gold trade in yonks. That?s because it has been the asset class from hell for the past five years, dropping some 46% from its 2011 $1,927 high.
However, we are now in a brave new, and scarier world.
Given the extreme volatility of financial markets in recent months, all of a sudden keeping hedges on board looks like a good idea. I?m sure the next time stocks take a big dive, the barbarous relic will post a double digit gain.
So, this makes it an excellent hedge for my outstanding long S&P 500 (SPY) and short Treasury (TLT) ?RISK ON? positions.
Also supporting the yellow metal is what I call the ?Big Figure Syndrome?. And there is no bigger number than $1,000, the upper strike on this trade.
While rising interest rates is always bad for gold, the realization is sinking in that it is definitely NOT off to the raises now that the Federal Reserve has at last begun a tightening cycle.
Personally, I expect ?one and done? to gain credence by midyear, once implications of six months of Fed inaction starts to sink in. As long as rates rise slowly, or not at all, we have a gold positive environment.
The Treasury bond market has already figured this out, with yields now lower than when the Fed carried out its 25 basis point snugging.
In addition, gold has recently found some new friends. Russia has come out of nowhere in recent months and emerged as one of the world?s largest buyers. This is because economic sanctions brought down upon them by the invasion of Crimea and the Ukraine is steering them away from dollar assets.
Keep in mind that this is only a trade worth about $200 to the upside. Then, I?ll probably sell it again.
I am avoiding the Market Vectors Gold Miners ETF (GDX) for now, as the next stock market swoon will take it down as well, no matter what the yellow metal does.
But get me a good price and a rising stock market, and I?ll be in there with another Trade Alert.
My interest might even expand to include the world?s largest gold miners, Barrick Gold (ABX) and Newmont Mining (NEM).
The new bull market in gold is still at least five years off. That?s when it picks up a huge tailwind from a massive demographic expansion by the Millennials, which eventually leads to much higher inflation.
Also by then, China and other emerging nations will begin to raise their gold reserve holdings to western levels. This will require the purchase of several thousand metric tonnes! That?s when my long-term forecast of $5,000/ounce will finally come true.
With conditions as grim as they were in 2015, you would have thought the price of gold was going to zero.
It didn?t.
While no one was looking, the average price of gold production has soared from $5 in 1920 to $1,300 today. Over the last 100 years, the price of producing gold has risen four times faster than the underlying metal.
It?s almost as if the gold mining industry is the only one in the world which sees real inflation, which has seen costs soar at a 15% annual rate for the past five years.
This is a function of what I call ?peak gold.? They?re not making it anymore. Miners are increasingly being driven to higher risk, more expensive parts of the world to find the stuff.
You know those tires on heavy dump trucks? They now cost $200,000 each. Barrick Gold (ABX) didn?t try to mine gold at 15,000 feet in the Andes, where freezing water is a major problem, because they like the fresh air.
What this means is that when the spot price of gold falls below the cost of production, miners will simply shout down their most marginal facilities, drying up supply. That has recently been happening on a large scale.
This inevitably leads to a shortage of supply, and a new bull market, i.e., the cure for low prices is low prices.
They can still operate and older mines carry costs that go all the way down to $600. No one is going to want to supply the sparkly stuff at a loss.
That should prevent gold from falling dramatically from here.
I am constantly barraged with emails from gold bugs who passionately argue that their beloved metal is trading at a tiny fraction of its true value, and that it is really worth $5,000, $10,000 or even $50,000 an ounce.
They claim the move in the yellow metal we are seeing is only the beginning of a 30-fold rise in prices similar to what we saw from 1972 to 1979, when it leapt from $32 to $950.
To match the 1936 monetary value peak, when the monetary base was collapsing and the double top in 1979 when gold futures first tickled $950, this precious metal has to increase in value by eight times, or to $9,600 an ounce.
I am long term bullish on gold, other precious metals, and virtually all commodities for that matter.
The seven year spike up in prices we saw in the seventies, which found me in a very long line in Johannesburg, South Africa to unload my own Krugerrand's in 1979, was triggered by a number of one off events that will never be repeated.
Some 40 years of demand was unleashed when Richard Nixon took the US off the gold standard and decriminalized private ownership in 1972. Inflation then peaked around 20%. Newly enriched sellers of oil had a strong historical affinity with gold.
South Africa, the world?s largest gold producer, was then a boycotted international pariah and teetering on the edge of disaster. We are nowhere near the same geopolitical neighborhood today, and hence my more subdued forecast.
But then again, I could be wrong.
The previous bear market in gold lasted 18 years, from 1980 to 1998, so don?t hold your breath.
What should we look for? When your friends start getting surprise, out of the blue pay increases, the largest component of the inflation calculation. That is happing now in the technology and the new US oil fields, but nowhere else.
It could be a long wait, possibly into the 2020?s, until shocking wage hikes spread elsewhere.
Legal Disclaimer
There is a very high degree of risk involved in trading. Past results are not indicative of future returns. MadHedgeFundTrader.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice. Information for futures trading observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein. Affiliates of MadHedgeFundTrader.com may have a position or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies.
This site uses cookies. By continuing to browse the site, you are agreeing to our use of cookies.
OKLearn moreWe may request cookies to be set on your device. We use cookies to let us know when you visit our websites, how you interact with us, to enrich your user experience, and to customize your relationship with our website.
Click on the different category headings to find out more. You can also change some of your preferences. Note that blocking some types of cookies may impact your experience on our websites and the services we are able to offer.
These cookies are strictly necessary to provide you with services available through our website and to use some of its features.
Because these cookies are strictly necessary to deliver the website, refuseing them will have impact how our site functions. You always can block or delete cookies by changing your browser settings and force blocking all cookies on this website. But this will always prompt you to accept/refuse cookies when revisiting our site.
We fully respect if you want to refuse cookies but to avoid asking you again and again kindly allow us to store a cookie for that. You are free to opt out any time or opt in for other cookies to get a better experience. If you refuse cookies we will remove all set cookies in our domain.
We provide you with a list of stored cookies on your computer in our domain so you can check what we stored. Due to security reasons we are not able to show or modify cookies from other domains. You can check these in your browser security settings.
These cookies collect information that is used either in aggregate form to help us understand how our website is being used or how effective our marketing campaigns are, or to help us customize our website and application for you in order to enhance your experience.
If you do not want that we track your visist to our site you can disable tracking in your browser here:
We also use different external services like Google Webfonts, Google Maps, and external Video providers. Since these providers may collect personal data like your IP address we allow you to block them here. Please be aware that this might heavily reduce the functionality and appearance of our site. Changes will take effect once you reload the page.
Google Webfont Settings:
Google Map Settings:
Vimeo and Youtube video embeds: