Next Move Up In Gold Should Be Powerful
It has been awhile since my last public commentary on the precious metal and currency markets. The reason for this is because I didn’t really see a whole lot happening. The market action has been fairly stale for the past month or so. We’ve also been in a fairly lengthy consolidation phase throughout this entire year which has surprised me. I figured we would have seen a surge in precious metals this winter and spring, but it never came to pass. The gold price has recently languished in a trading range with the bottom of the trading range holding steady at around $640 an ounce. I’ve stated previously that the $640 mark was a flat out buy for gold and I thought that it was a buy even when it was trading for around $680 - $690. In fact, I’d be accumulating for the long term if the gold price was anywhere under $700. I believe that this longer than expected consolidation phase will result in an even more powerful surge in the gold price.
So why do I think we are setting up for a big spike up in the gold price? Let’s go over some of the reasons.
The first reason is the fact that the oil price has moved up to the $70 a barrel mark. The reason this is important is because with gold trading around approximately $650 an ounce, it shows that gold in relation to oil is relatively cheap from a historical standpoint. At the very least, we should see gold move up so there is at least a 10 to 1 price ratio with the oil price. Even at a 10 to 1 price ratio between gold and oil, gold would still be cheap in historic relation to oil. Gold will follow the oil price. The higher the price of oil goes, the higher the price of gold will go. Considering the geopolitical tensions in the Middle East, the potential for oil to go much higher is always there.
The second reason is the continued devaluation of Federal Reserve Notes which are inaccurately referred to by many economists as U.S. Dollars. The definition of a U.S. Dollar is a piece of silver. Federal Reserve Notes do not fulfill this definition because they are not redeemable for silver, are represented as digits on a computer or as paper notes and represent debt. The USD Index which should be called the Federal Reserve Note Index or FRN Index continues to hover around all-time lows, which is obviously bullish for gold. Other currencies have surged in strength in relation to Federal Reserve Notes. Take for example the Pound Sterling which is now at a 26 year high in relation to Federal Reserve Notes. Read the article from the Guardian that goes into detail about the recent surge in the Pound Sterling.
Dollar Sinks to 26-Year Low While The Hot Money Pours To Sterling
The Federal Reserve needs to continually print more and more money and create more debt in order to keep everything going. The more Federal Reserve Notes that are created by the central bank the less valuable they become in relation to tangible items like gold. As Federal Reserve Notes lose more and more value to other currencies like the Pound Sterling, just imagine how much value it is losing in relation to something tangible like gold.
The third reason is the fact that nobody is talking about gold. Since there has been very little price action in the gold price, there is currently very little interest in gold as an investment. This is important from a psychological standpoint because usually the best time to buy is when nobody is talking about something. I like to use CNBC and the military industrial complex controlled media as an indicator. If CNBC and other establishment media sources start to really take interest in a particular investment that usually means it is time to sell whatever they are talking about. So if you see someone like Jim Cramer do a special on his five favorite gold stocks, that is usually a good short term indicator to sell.
The fourth reason is the fact that central banks have dumped all sorts of gold on to the market and they have been unsuccessful at knocking the gold price down. They’ve been able to keep the gold price locked in a trading range, but have done little to disrupt its long term upwards trend. One recent example of this was the Bank of Spain announcing that they dumped multiple tons of gold on to the market.
Spain Shifting Reserve Assets To Bonds From Gold
Below is an excerpt.
The Bank of Spain sold 28 tons of gold in May and 40 tons in both April and March, accounting for the bulk of recent sales made by the Central Bank Gold Agreement signatories.
The fifth reason ties in with the fourth reason. How much longer can central banks manipulate the gold market by dumping large quantities of gold on to the open market? The manipulation of the gold market by central banks is real. Why would they not manipulate the gold market when gold is a direct competitor to their worthless paper? It is insane to believe that there is no manipulation involved. The good news is that the central banks cannot continue this game forever. Gold unlike fiat currencies cannot be created out of thin air, so they have a limited amount of gold that they can use to control the gold price. As central banks run out of gold to sell they will no longer be able to manipulate the gold markets. Gold as a real tangible asset will outperform its fiat currency competitors.
The bottom line is that the price of gold in the long term is going to go higher. It is not a question of if it will go higher it is just a question of when it will go higher. The longer the consolidation lasts, the more powerful the move will be. If you have spare cash, now is a good time to add to your positions in gold.