Gold surges toward decade high

by Chris Becker

With yet another industrialised nation announcing a record government deficit (Canada this time with $300bn, close to our own $240bn), and central banks furiously papering up over massive cracks in the global economy in the wake of the coronavirus pandemic, it’s no wonder that the Minsky Metal is on a tear, almost hitting $1800USD per ounce overnight:

But like all short term moves, this needs to be placed in context, because gold is bearing (sic) down on a near decade high, after being in a bear market for half that time. The weekly chart (with 200 day moving average in pink, a good proxy showing the medium term trend direction) below shows how through the first half of the Trump administration it hovered just above its recent lows, and only really took off midway through last year, predating the pandemic:

Indeed, the current trend (upper thick blue line) is in a near bubble like condition, particularly when you compare it in an analog fashion to the post GFC rally up to $1900 in 2011. So while current monetary and sentiment conditions are suggesting a return to the record and decade high, momentum is overbought considerably in the short term, requiring a pullback to ca. $1700 or so (the lower thick blue line).

Both for holders of the precious metal in AUD, its already in a bull market, having surpassed the record high in early 2019, past $1800AUD per ounce and now only off its recent record highs after the rally in AUD took some shine off. This may well be a good entry point as price is closer to the bull trend line (thick blue line):

In the short term, gold price in AUD has retraced to its 200 day moving average (the light blue line below all price action) but momentum is picking up in the short term (CCI green below) with a breakout possible above $2600AUD:

Notably, gold in AUD doesn’t have the same correlation as its USD cousin during the pandemic, where it sometimes closely matched equity markets, so keep watching those catalysts around AUD and coronavirus, as the Minsky Metal continues to prove its worth as part of insurance in your portfolio.

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Comments

    • boomengineeringMEMBER

      Good electrical conductor but not enough of it to make it viable.
      Copper and silver are better but their conductivity don’t last as long. Good conductor of heat as well and can be drawn out to thinnest wire.
      Space helmets use it to reflect light

    • Actually more useful overall than paper or polymer fiat currency, don’t you think?

      I’m not a gold bug anymore, but gold is a good ‘undollar’; I think it’s good to have something to track the shenanigans of fiat.

  1. I bought in at AU$1650. Even if it consolidates for a year or two now I am happy. I still think all the printing means US$3,000 is on the cards, it just may take a little longer to get there.

        • – I knew I would get a reaction like this from one of the “austrians” or “goldbugs”.
          – A LOT OF people (like one “Dominic”) fail to wrap their head around the true nature of PRICE Inflation, credit/debt inflation, falling prices and DEFLATION and how these things interact. And then end up making up the wrong assumptions and the wrong decisions (when it comes to the price of e.g. gold).
          – Don’t worry. it took me also a long time to get these things right.
          – Some people here in “Stralia” think that a falling currency (like our pacific loonie/peso) is inflationary. Agree, it will push up import prices but when wages remain flat or are falling then rising prices are actually (credit) DEFLATIONARY.

          • Willy, I’m very comfortable I know what I’m talking about.

            I have 2 post-grad degrees in Finance and worked at an investment bank for more than a decade. If I didn’t know my stuff, that would be very concerning.

            Consider your argument: the number of dollars is expanding at a far faster rate than the quantity of gold but gold will fall in dollar terms. How so? This requires the suspension of the most basic law of economics.

            Hang on a sec, I know a situation in which it could happen: if credit expansion went into reverse and central banks refused to print any more money. Sound like a credible scenario to you? Thought not.

        • – The FED kept “printing money” (also called QE) between say mid 2008 and 2015. Based on your theory gold should have risen in ALL those years. It didn’t. After say april 2011 gold fell from about $ 1920 (I was short gold that time) to say $ 1200 / $ 1300. Because it’s the speculating public that decides what to do with that newly printed money and NOT the FED or the government.
          – On top of that: The FED’s QE is NOT “printing money”. It’s creating more credit/debt and that will be inflationary in the short run and DEFLATIONARY in the long run. So, QE may help to increase inflation but it will only increase the DEFLATIONARY forces when all that newly created credit/debt (a.k.a. QE) matures or paid back (= deflation) or it won’t be paid back (= deflation).

          • Gold anticipates – it doesn’t follow i.e. move in lock step with money supply expansion. Gold hit $1,900 long before QE really got going.

            How is creating money out of thin air deflationary? Bank credit, yes, at the end of a boom. But central bank balance sheet expansion is the counter-balance (and it tends to be permanent money).

        • – In the 1980s & 1990s US money supply tripled but gold went by some 60%.
          – Gold does well when REAL interest rates are negative or getting more negative. That happened in the 1970s & 2000s. Gold doesn’t do well when interest rates are positive or getting more positive (1980s & 1990s).

          • Geez – Ive been hearing this banter for 20 years now. All good talking points but aren’t particularly practical. Yes, real interest rates are the driver, but its not the only one, and you’ve touched on the others. Investment theme is another big one – the prevailing zeitgeist trumps everything, until, all of a sudden, it doesn’t.
            For now, Im holding the small hoard Ive gathered since ’05. Back then gold was NEVER talked about except by lunatics in basements. Fast forward 15 years and Alan Kohler mentions it on ABC finance every night. Give it more time and then – when 30 year olds are talking about gold storage options over their craft beers, I reckon I’m ready to quit.

      • I agree. When everyone dumps everything to buy USD will be the time to buy gold.

    • We don’t need classical hyperinflation to be in deep trouble. Given the massive deflation cycle we’ve just globally been through a return to inflation of 5% even in our currently doctored cpi stats, will feel like hyperinflation to most, esp if wages don’t keep up. I think there is a real risk price inflation will raise it’s ugly head given that we’re going through a supply chain shock coupled with monetary inflation. So i think that qe this timeis likely to have a different outcome than during the gfc (though i still expect asset price inflation might occur, which is one reason why I didn’t completely sell out of the stock market, and the stock markets seem to be showing that atm). Gold has performed very well this century so far, so it’s performed well under various inflationary and deflationary circumstances. I think it is a very nice diversifier of your portfolio and I’m much more relaxed having a significant chunk of my long term savings in it, rather than in cash. I’ve learned to ride theroller coaster and it’s price movements up or down tend not to elicit an emotional reaction any more. I first bought in 2012

        • To the extent that any creditor would lose their money, yes it is.

          To the extent that money would be worth nothing, no it isn’t.

          • – Hyper-Inflation (HI) and Deflation are NOT the same. In HI people want to get rid of their money/cash and want tangible assts, e.g. gold. In Deflation people want to get their hands on cash or cash like instruments (e.g. gold).
            – It’s easy to spot HI (just look at Weimar Germany). When e.g. the US would be the only one to enter HI then we’ll see the AUD/USD go through the roof. Not to say 2 or 4 but to say 40.000 and higher. Gold would go NOT to say $ 4.000 but to $ 20 million or more.
            – In Deflation gold will go down but it will do well compared to other things like the ASX 200, Dow Jones and e.g. the CRB index.

        • “– Hyper-Inflation (HI) and Deflation are NOT the same.”

          I know that and I never suggested they were — only someone extremely ignorant would suggest so.

          “In Deflation people want to get their hands on cash or cash like instruments (e.g. gold).”

          Wrong. Gold is not a cash-like instrument. Gold is money. Cash is an IOU. Gold does well in a deflation because deflation threatens the solvency of the banking system and the market anticipates intervention by the authorities that is inflationary in nature. However, if a ‘Volcker’ were to occur i.e. cash rates to 20%, gold would be hammered. Are cash rates anywhere in the Western world going to 20% this time? Er, no. The $US was saved once — it won’t be saved again.

          ” the US would be the only one to enter HI then we’ll see the AUD/USD go through the roof.”

          Wrong. If the US experienced HI it would collapse the entire debt-based money system globally. Why? Because every currency is fiat and all are a derivative of the $US — where the $US goes so goes the rest.

  2. Bodacious Ta-tas

    What happened to HnH’s prediction of $10,000 this cycle? Lemme guess, “this cycle” is open to interpretation 😂😂😂

  3. – I see another reason why gold & silver are surging. It seems that in the US the “Plunge Protection Team” is “in full swing” to prevent the markets (S&P 500, dow Jones, etc.) from falling.