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Chris Temple “What IS Gold, Anyway!?”

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If you are a “gold bug,” you can’t understand why your prized yellow metal did not go up a whole lot more in the recent past, due both to the tragic downing of Malaysian Airlines Flight 17 over Ukraine and to Israel’s ground invasion of Gaza. It has to be that “someone” has again attacked the gold market in order to keep the price down. If you are not a gold bug, this recent small, halting rally is “proof” to you that gold is an asset class sought after only by people wearing tinfoil hats. Its lethargy demonstrates that nobody cares about gold (somewhat true to an extent) and that this asset class has once again proven itself a failure.





Both sides are wrong.



I will keep my remarks here brief as–among other reasons–I will be shortly releasing an updated, stand-alone piece on gold. But I would like to remind everyone for present purposes that the majority of the gains in gold and silver prices since they bottomed over a dozen years ago–and virtually all of the gains in mining stocks–were NOT owed to a “crisis” or to these assets being “safe havens.” Instead, they came as virtually all asset classes were melting up.



Gold continues to suffer from a relative lack of demand not because people aren’t worried about what’s going on in the world. As I pointed out a bit ago, only Treasuries seem to have enjoyed at least a little “stroll to safety” action recently. Stocks haven’t cared. So it is really the Treasury market that is the odd man out; not gold.



Some traders do seem a bit confused as to what they should do. As you see in the nearby chart from a fresh commentary by Kira McCaffrey Brecht, gold seems to be July 21, 2014 completing the formation of a so-called reverse head and shoulders formation. Still in all, the yellow metal just can’t seem to muster a decisive break out to challenge the near-$1,400 per ounce high of earlier this year. Nor, on the other hand, can any selling pressure be long sustained. Even if a lot of speculators still shun gold in favor of Teflon-coated equities, they at least have the good sense not to try and short to aggressively; not with Janet Yellen dismissing bubbles, and not with all that could indeed go wrong in the world and its markets. The downside is thus similarly limited right now.



Those geopolitical issues already in front of us (and others to come?) could at some point augment the underlying bullish case for gold. But nobody should be in this sector in the first place if this is your primary reason to want to own gold. The longer-term bullish picture is as it has been (though interrupted from time to time by sharp and/or grinding sell-offs alike) for the more than 40 years now since Richard Milhous Nixon and Arthur Burns gave us a fully fiat dollar in the first place. And with the entire world now in “Inflate or Die” mode, THAT is why you need to have a position in this sector.

Posted July 25, 2014


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