Big Money Likes Gold — So Should You: Watch the Price of Gold

Big Money Likes Gold — So Should You: Watch the Price of Gold

We have our eyes glued to the coronavirus for just a couple of days and look at what we miss…

…we have a central bank boss clearly in denial…

…a stock market likely to bounce now that the fear is over…

…my first bit of hate mail…

And the mainstream went and talked about gold…

What a week.

The countdown is on

Before I kick off today, consider this a public service announcement.

In the middle of last year, a very special parcel was shipped to me.

Let me just point out, that this was something only a handful of people had access to at the time.

Jim Rickards had sent me a ‘galley’ copy of his latest book, Aftermath.

A galley copy is basically a final draft that looks like a finished book, but it gives publishers, editors, and writers the last chance to look for errors.

And because Jim and I are not only colleagues but good friends — and occasionally pool rivals — Jim personally sent me one from his home.

I read it within a few days.

And if you get a copy, you will too.

Consider Aftermath the ultimate (and practical) guide to protecting your wealth against the coming future events.

So how can you get your hands on it?

Keep an eye on your inbox today…

Stock Markets overreact but Gold didn’t

Central bank watching has been something of a hobby of mine for the past few years.

Yet this week, I completely forgot that the Reserve Bank of Australia (RBA) was getting the band back together, and ready to start 2020.

What came out of the meeting? No rate change for one. And a surprisingly optimistic Philip Lowe. We’ll start sifting through that fairy tale next week.

So how come I missed the RBA was meeting?

Simply put, I’ve been watching gold.

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In spite of the stock markets bouncing up and down on the back of the coronavirus, the yellow metal has dived US$37 — 2.2% — per ounce.

Given that gold is often called the fear metal, it tells me that people weren’t overly worried, rather there has probably been some panicked selling to headlines.

However, I’m not the only one who has been looking at gold this week.

Even the mainstream media has joined in on the fun.

Earlier in the week The Australian noted that gold may benefit investors, writing:

But rather than old fashioned bullion, the trend is now moving towards Exchange Traded Funds (ETF).

Australia’s best known gold ETF, the ETF Securities managed GOLD fund reports inflows are running at more than triple what the fund was getting two years ago.

[…]

The trend is universal with Bloomberg reporting worldwide gold holdings in ETFs rose to their highest level in nine years at the end of last month. (Exchange Traded Funds are listed index funds where a manager aims to reflect an underlying index price or commodity price such as the gold price).1

Of course, you’ll notice that the article refers to people investing in an exchange traded fund (ETFs) and not about the benefits of holding the physical metal.

Don’t worry, I have no doubt they’ll get on board the gold wagon eventually.

Nonetheless, I’m glad they pointed to the rise of gold under management, because it is a critical detail you should pay attention to.

Gold-backed ETFs now have a 2,885.5 tonnes under management for 2019. A whopping 426% increase on 2018.2

That’s the highest amount ever held by ETFs since they were created in 2003.

And more to the point, this is a very important signal on where we are in the gold window…

The gold windows

What the gold price does over the next few months doesn’t really matter.

While a short rally is good news, there’s much bigger things at work for gold…

It’ll only be a matter of months before we start to see some serious moves in the price of gold once more.

How do I know?

Simple. It’s about looking at the past two gold bull markets to know which way things are going.

Rather, I like to call it my gold windows theory.

It isn’t some complex mathematical idea.

Nope. It’s incredibly simple.

The idea is that a gold bull market moves in three distinct stages: Currency devaluation, investor phase, and then mania.

In the past two gold windows, the investor phase has been identified by the creation of gold futures and then exchange traded funds based on the gold price.

Gold futures began trading in 1974. And gold-backed ETFs were first created in 2003.

When Wall Street finds out how to put a contract on anything, it’s usually a sign that more investors will flood the market.

Yet in this gold window, the same forces are at play.

First we saw central banks rushing into the gold market. They’ve been net buyers for almost a decade. That is, collectively central banks have bought more gold than they have sold.

And now gold-backed ETFs have been steadily adding more gold since 2017.

Here’s the thing.

ETFs only ever increase their asset holdings to satisfy investor demand.

To me, it’s crystal clear: Gold is in high demand from institutional investors…and ever more are moving their wealth into gold.

With central banks in gold, and managed money in gold…the investor phase of the gold bull market is well underway.

Big money is in gold. You should consider it too.

Until next time,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia

PS: Exclusive interview from The Daily Reckoning Australia: ‘The New Case for Gold: An interview with bestselling author and Wall Street insider, Jim Rickards’.  Click here to learn more.