Gold: It’ll Be Even Better Next Year
It’s that time of year…
The stock markets are boring.
All that the papers can write about is Trump’s impeachment…
…and Scott Morrison’s overseas holiday while three quarters of the country is on fire.
Yet, while the press is making all this noise of which leader did what, there’s something happening in the gold market…
Confirming the trend
I could do a bank recap for the year…
Or I could talk about how the recent unemployment data suggests a there’s no rate cut coming in 2020 (that’s wrong, there’ll be another rate cut).
Heck, I could even talk about property and how that’s on the up — no matter how inflated property prices are compared to wages.
But, I want to end the year where I started.
Talking about gold.
Because if you think what happened this year for the yellow metal was exciting, well hang on to your hats…
…because 2020 will really rock you.
Too often people get caught up in narratives.
That is, rather than making sure the fundamentals back up what they believe, they just keep going on with their hunch.
And gold bugs are notorious for this.
Too often, they’re caught up in the ‘debt will implode us all’ story.
But then, that never happens…
The debt keeps getting bigger and this ‘reset’ never comes.
Which causes people to lose faith in the metal.
When nothing eventuates, gold bugs are labelled crazies who should take their guns, tinned soup, and head for the hills in their four-wheel drive.
And because of this, people dismiss the yellow metal.
This happened a lot after the gold bull market ended in 2011.
But come the start of 2016, things started to change for gold.
And believe it or not, how gold has behaved this year gives us a great insight for what’s to come next year.
Sometimes, you just have to break away from looking at gold in US dollar terms…
Ignore the US dollar gold price…for now
Gold has rallied 15.6% in US dollar terms since the start of the year.
It kicked off 2019 at US$1,278, and at the time of writing it was US$1,478 per ounce.
The thing is, the gold price when measured by other countries, has moved much higher.
For example, in Aussie dollar terms, gold is up 17.9% in the same time.
In euros gold is up 20% for the year…
The recent falls have caused some other currencies to lose their heady gains.
However, what does matter, is that every major currency around the world — bar the Swiss franc and the US dollar — hit new highs when measured in gold.
Take a look for yourself:
Most currencies hit new highs in gold
Source: Money Morning
Source: Money Morning
What this means is, is that a US dollar gold price rally isn’t too far away.
Currencies predict a gold rally
Believe it or not, the next clue to what’s happening for gold comes not from the gold market…but currencies.
Not gold in terms of US dollars…
…but the value of gold in Turkish lira, Russian ruble, Indian rupiah, South African rand, Brazilian real and the Mexican peso.
All of these emerging market currencies have all-time highs when compared to gold over 2018 and 2019.
Sure, neither Russia nor Turkey is known for currency or political stability.
Yet both of those currencies reflect a change in perception. Investors aren’t fleeing into more stable currencies like the euro or US dollar. Rather, they are moving into hard money such as gold.
It’s a similar story for Brazil and South Africa.
Remember, these are gold-producing countries.
But those are just emerging markets, right?
Emerging markets traditionally have weak currencies, so all-time highs in their gold price shouldn’t be a surprise.
Well…what about Australia or Canada?
Both are major, developed gold-mining economies.
At least, that’s where the all-time highs in local currencies started.
In March this year, the price of gold in Aussie dollars reached an all-time high of $1,888.
Six months later, the Aussie new gold price has gone on to make almost a new high each month. Trading as high as AU$2,300 per ounce two months ago.
Here’s the thing.
Australia isn’t the only developed economy to see their currency hit an all-time high in the gold price.
Back in June, the Canadian loonie (dollar) finally pushed above CA$1,848 for the first time ever…and a short few months later is now CA$1,977 per ounce of gold.
A month after that came the Japanese yen.
That’s right. A stable, perceived safe-haven currency hit an all-new high in the gold price in August.
My point is it’s no longer just emerging market currencies wreaking havoc against gold. Major developed economies are falling in value too.
This isn’t a once off.
This pattern revealed itself in the 2000s gold bull market.
Remember, this currency weakness happened before we knew a financial crisis was going to land at our feet.
Gold is doing exactly what it should be.
Alerting us to stress in the financial system.
Six months ago it was showing up in emerging markets and commodity-producing nations.
Ignore this dip.
The gold price rally is just beginning.
And it’s giving you clues as to what’s about to happen next.
Get ready for more gains in the yellow metal…
Merry Christmas and a happy New Year
And that’s a wrap for the year.
Over the next two weeks, I’m going to take some much-needed time off. Time away from writing, and time away from the markets. And I highly recommend you do the same.
De-plug, tune out, and ditch the internet if possible.
After the family obligations are over, the dog and I are packing up, jumping the FJ, and heading bush for a few days. My focus will be books, sunsets, and listening to the sounds of the Earth instead of the sounds of traffic.
Location? Undecided. Hopefully one of the few spots in Australia where there is no mobile reception…and isn’t on fire.
While I’m gone, we’re going to rerun some of the most popular articles this year at The Daily Reckoning Australia.
But before I sign off for one last time this year, I want to thank you.
It’s an absolute pleasure to come into your inbox each day with my daily, gold-focused macro musings. Sure I’m tired and burnt out, but I truly couldn’t ask for a better way to make a buck.
And ready yourself to start again in 2020.
Have a merry Christmas, and a happy and safe New Year.
Over ‘n’ out,