Why Investing in Gold Will make You Old — Gold Price Continues to Tank
‘Gold will make you old.’
I’d never heard that before.
I feel it though.
And after spending more than a decade writing about it, and even longer investing and trading it, I can relate to its sentiment.
There’ve been late nights when I’ve traded the yellow metal in the US. After many years trying to ‘trade’ the US market hours — with some big wins and some big losses — I decided buying lumps of the yellow and white stuff was better suited to my investing style.
Yet those words — ‘gold will make you old’ — really landed this morning.
That was the first thing I read when I opened my emails.
In fact, it was a headline from a US-based gold newsletter writer Brien Lundin (incidentally, Brien helms the first ever ‘gold newsletter’ created, with roots going way back to the 1970s).
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Brien admitted that he’d never heard that sentiment expressed before. And that he borrowed it from one of the great financial commentators Kevin Muir who writes MacroTourist. With Kevin writing ‘I can attest to its truth, as over the past few months, I feel as old as Yoda’.
A tale of two markets
Try as we might, investing in precious metals is an emotional investment at times.
Especially when you think or believe they should be going up. And instead, they are going down.
Which is exactly what is happening now.
The price of gold has been kicked even lower than many people thought it would go. It’s dipped all the way down to US$1,724 this morning.
Quite frankly, US$1,700 is looking more and more likely. And I wouldn’t be surprised to see my pet rock head as low as US$1,680 in a flurry of trading.
The thing is these falls seem to be at odds with what most gold experts view as the ideal supportive environment for gold.
And I agree. This is the ideal macro backdrop for gold. We’re looking at excessive and unprecedented central bank intervention, and possibly even more coming from the Federal Reserve based on the recent action in the US bond market. Global interest rates in Western countries are at all-time lows. There’s rising geopolitical tensions between China and others. On top of that, the US government is likely to throw out some more ‘stimulus’ to the American people dressed up as COVID aid.
In spite of this economic instability and interventionist policies, the gold price continues to tank.
This is why gold experts are weary and feeling old. The setting is ripe for gold to rally and it isn’t.
Yet, there is a mismatch between the paper price and the physical stuff.
Speak to most bullion dealers in Australia and they’ll tell you demand for the yellow stuff is high.
Much to my chagrin when I go to buy some, I’ve seen people queuing to buy bullion.
I placed an order myself this very morning to get my hands on more. And guess what? Demand for minted and cast bars under a kilo is so high, that my order is unlikely to be filled for a couple more weeks yet.
I know almost everyone in the gold industry in Australia and I can’t even get pushed ahead of the queue.
What does this mismatch in demand tell you?
People are taking advantage of the lower price. You can pick up a minted bar for under $2,300 in Aussie dollars. My point is, don’t sweat the price drop. This rare divergence between the physical and the paper market is really your chance to get some more of the physical.
Life at zero
When it comes to bullion, the dip is your friend.
I’m not the only one to talk up the metal either. It’s something my colleague, editor Greg Canavan over at Greg Canavan’s Investment Advisory service has long been an advocate for as well.
His latest thesis is that investors not only need to adjust to the idea of low interest rates for the foreseeable future, but also prepare for the damage that ‘life at zero’ will have on how you grow your wealth.
One idea is bullion. More importantly: How do you actually grow wealth when any cash stored at the bank is technically going backwards thanks to low interest rates all while cash stored at the back is actually losing value through currency depreciation?
The thing is, despite the noises economic experts make about interest rates rising, it’s highly unlikely they will. Rather we are seeing the cracks in the financial system get bigger. Greg wants to show you how you can avoid those. Stay tuned for his ideas later in the week.
Until next time,
Editor, The Daily Reckoning Australia
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