MOOSPEAK
Golden Era
Nothing says Golden Era like a 50% annual return on the gold coins you have sitting in your bank lockbox.
Then again, GLD plunged 16% top to bottom on Thursday and Friday. It was a shocking display of volatility and weakness by an asset that had just put in one of its best annual performances in history. It begs the question-- Is the run in gold over?
I'm guessing it is not. Including the rally earlier in the week that preceded the plunge, gold ended less than 3% down for the week and is still up 12% for the month of January.
Those who read this newsletter knew weeks ago that gold was severely overbought and due for a correction. In all liklihood that was the cause of the swoon-- and not the disappointing realization at Davos that Trump wasn't really about to attack Denmark and break up NATO to forcibly annex a massive sheet of ice spuriously marketed to the world for centuries as a “green land”. Maybe someone did their due diligence. It happens.
Gold 's prospects are solid in part because the current President of the US is the self-described poster-child for an “American Golden Age” and where he treads, gold has license to go nuts. So it has.
While Trump is in office then, gold isn't going to disappear. It will get more valuable. If he has his way, half the gold in Fort Knox will end up bedazzling the walls of the new White House Ballroom. But it isn’t just the ballroom-dancer-in-chief. Gold represents safety and Trump is a disruptor with new ways of doing things, (creating a critical need among some to hedge the uncertainty).
Central Bank buying is one of the largest contributors to rising gold prices. The whole notion that the US can freeze the dollar assets that a foreign nation may hold in reserve, essentially shutting down their government operations has gained credence under Trump.
The BRICS countries (Brazil, Russia, India, China, and South Africa among others) have been trying to find a way around a US Dollar-centric global trade system since 2009. They have been largely unsuccessful. Global trade continues to be denominated in US Dollars and gold remains the safest of reserves.
Cheaper US money is is still expected, inflationary and good for gold. Another rate cut is expected in the summer. Meanwhile, we have a large persistent US deficit, and geopolitical tension in Iran, Venezuela, and the Black Sea. Traditional threats (global recession or a severe equity market panic) evidenced by equity margin calls are not in evidence.
This week reminded us that this may be the best buy-the-dip moment in gold and gold mining since last fall.
