07/01/2019/21:30CET
Since Oct 2018, the traditional markets have been in turmoil. Let's see how the traditional hedge has been doing.
Since time immemorial, gold has been money. Before it came only silly tokens of value like shells and stones. Gold finally fulfilled a very important criteria to become money. Fungibility and scarcity.
It mattered not who's face was stamped onto it, it was the weight of gold that mattered for anyone. Everyone. Everywhere!
A true world wide money!
It is of no surprise that Kings, Sheiks, Tzars, and rulers of all creeds did not like the natural constraint that the scarcity of gold put on them. The natural properties of gold (and silver) made it honest money.
Today the concept of "non counterparty risk money" is coming into focus for more and more people around the world.
No matter the shortcomings of using gold as a money, it retains its purchasing power through the ages.
A dress toga in the Roman court cost about 1 ounce of gold to buy. Today it cost about the equivalent of 1 ounce of gold to buy a nice suite. This is retention of purchasing power over a span of 2 milenia. Not bad!
As we enter a period of rapid and chaotic unwinding of financial assets around the world. An unprecedented synchronised global realignment of financial reality, how will the classic historic hedges of Gold and Silver fair?
Odds are, not bad.
Let's take a look at the charts
Gold
Here is spot gold weekly chart
What does the chart tell us...
- Almost in sync, gold started it latest upleg at the same time traditional markets tripped and stumbled. Till then it had been in the doldrums. Unloved. Ignored.
- In fact worse than ignored, it was in a massive downswing. Check out the weekly candles. That looks almost fake the way that line just traced down without a stop. You would be right to think that markets, free markets just don't do that!
- That plunge is top to bottom almost 15%
- The red dotted line is the 1300 usd line. A level gold bugs believe is the trigger for the PTB (power that be) stamp on breakouts. The chart does hold quite a few cases where this level played as resistance in price, but correlation is not causation.
The daily chart
Now that is quite a neat kiss off the 1300 line yesterday!
What I think is coming
- Whether manipulate down or not, I think the energy is behind golds continuing rise
- The current pattern looks very much like the formation of a cup and handle. Handle not yet formed.
- A retrace to the 1240 level would make a nice handle bouncing off the lows of mid dec 2017.
- If manipulation is in fact taking place (I suspect it), then that means there is pent up energy being held back. How much is anyone's guess. If the PTB lose control of it, the whiplash upward will be breathtaking. The stuff of legend. A tale to tell your grandkids when you are old. To live through it will be something to remember.
- If gold makes a spike north of 1400 (clearing resistance) in a short period of time (say 3 mth), the reverberations in banking and bonds around the world will be equally historic and disruptive.
- If you hold gold. Hold it! I mean in your hand. Yes the yellow stuff. The real deal. The rehypothecation of the gold market by all accounts has been astronomical.
- There is a huge game of musical chairs going on in the gold market. Hundreds of people dancing around a single chair thinking the gold certificate they hold is real gold. That music can't keep playing forever. Beat the rush and sit down and claim your real gold.
Silver
In some regards, as far as returns go, silver may be a better bet than gold today.
Here is the weekly chart of silver
What does the chart tell us...
- We are getting a strong bounce from quite low levels in the high 13 usd range.
- The reversal started around mid sept 2018, about 3 weeks before the markets started to crumble.
- Price action did not really feel too much resistance at the 15.50 usd level which is a historic RS level.
- There seems to be little in Silvers way as far as TA goes till some prior tops at 17.50 and then more so at 18.50 usd.
- From the previous highs of the 21 usd handle in mid 2016 we have had a top to bottom retracement of 33%
- Our current rebound has seena 12% gain.
- A fib retracement top to bottom puts a rally to 61.8% right on the 18.50 usd level
- As with Gold, the odds lean toward Silver having been under the manipulative thumb of the PTB.
- If this is true, then silver also carries some pent up market energy behind the price. A breakout could be quite violent and historic.
- And again, as with Gold, hold the metal in your own hands. This could be the only way to hold precious metals for some time if we get a real SHTF breakdown in the global economy.
Gold Silver ratio
An indicator that is no stranger to gold and silver bugs is the chart that tracks the ratio of gold to silver. I.e How many ounces of Silver does it take to buy an ounce of Gold
- Those grey bands are US recessions. I see that there is a tendency for the ratio to spike upwards at times of recession. This suggests Gold will outpace Silver if we have a global recession.
- The ratio is stretched awfully high at the moment and a retracement to the mean would put the ratio at about 45. At todays gold price, that puts an ounce of Silver at 28 usd! Almost a doubling of todays price.
Platinum
I really had to zoom out to the monthly to show you this! Rarely do you get such an obvious chart for TA!
- Starting in 2004 Platinum had a crazy run of 200% till the GFC hit.
- At the start of 2008 Platinum plunged in a frightening way. Top to bottom -67% in 7 months.
- It bounced but then fell over for a prolonged bear market to today's price of 820 usd or thereabouts. This is the bottom price in 2008
- There is obviously something about to happen to the Platinum price. One wants to say a breakout is imminent but history suggests a breakdown could happen if the economies of the world slow down significantly. 2008 again.
Palladium
Holy hens teeth!
- Palladium is a rocket ship that left in 2016! It has gained 180% since then and looks to not be slowing down.
- It has had a non stop 55% gain in the last 5 months alone!
- Anything that goes up like that usually comes down at some point. Look back in 2001.
- Don't know too much about this metal except I have some in my exhaust pipe.
In General
These are the 4 precious metals in the periodic table of elements. All of them except Gold have a myriad of industrial uses and so have complicated fundamental features to their demand.
Gold and Silver are the classic monetary metals, so expect a positive bias to push them higher inversely to the general market and economic conditions. These 2 commodities are the 2 that are the main constraints on Fiat money, so kind of a canary in the coal mine you could say.
In addition to this, there have been a lot of moves behind the curtains in the gold world. Keynesian economists who control the western central banks despise Gold and Silvers inflexible constraints. But other countries like Iran, Russia, China and a good amount of the 'stans are net accumulators of monetary gold in recent years. What do they see coming? Why are they wasting capital on this so called by central bankers “barbarous relic”?
(Quick fact: John Maynard Keynes originally said that the "Gold standard [is] a barbarous relic” in 1924). Their messiah being misquoted - for the greater good I am sure. (sarc.)
Further, China has played some profound global chess moves in regards to monetary gold. The setting up of the Shanghai gold exchange has placed constraints on the LBMA (London Bullion Market Association) price fixing operations, and, in addition, China's introduction of Yuan based oil futures completes kind of a dynamic duo in China's hands. Oil exporters to China can accept Yuan in payment now, and then convert the Yuan into physical gold through the Shanghai gold exchange. I would like to see the stats on that one day.
What this portends for the continued dominance of the US Petro dollar standard will be an interesting episode to witness.
We live in interesting times ladies and gentlemen!
As always guys, leave comments, have fun and trade safe.