This Week’s Thoughts on Gold Investing
Your sleepy Gold Enthusiast woke up bullish this morning for no apparent reason. Yes, gold is hovering along between 1480 and 1500 in a bullish flag chart formation, and Yes, Russia admits they’re accumulating gold to help steady their economy. As all countries should probably be doing…
But as the morning coffee kicks in it’s more than that. The real bullishness seems to be coming from the growing realization that the US has entered a new phase of Quantitative Easing (QE), whether the Fed admits that’s what it is or not. Let’s face it – saying they see a need to buy $60 billion in bonds every month into the foreseeable future is not exactly saying the economy is robust and can stand on its own at the moment. In fact it’s saying the exact opposite.
Underneath the surface, what this Gold Enthusiast thinks happened is that US banks became so accustomed to risk-free money these past 10 years that they’ve forgotten how to manage their assets properly. As in: evaluate business proposals, assign risks and appropriate interest rates to loans, and grow their depositor’s money through sound decision making. Banking in a large part has turned into a middle-man business rather than a participation business, with all the lowering of standards that brings. Free enterprise depends on the threat of loss as a stabilizing mechanism. Take that away and people start making all sorts of stupid decisions. But that’s a long discussion, so let’s try to stay on track.
The real impact of Brexit and the US-China trade talks on the price of gold is psychological. These events expose issues that have been below the surface for a while, issues that show all is not rosy in the world. There is more uncertainty than most people would like to admit. That makes people nervous, and nervousness eventually drives people into safe-haven investments, like gold.
At this point we think Brexit and the trade war have served their usefulness as alert mechanisms. People are aware of these issues and are looking more broadly. And they see instability. It’s not a case of if it’s a case of when.
The important issues won’t be fully faced this week. So we’re expecting another sideways week for gold. The next big factor on the horizon is earnings season. The big gold producers start reporting earnings on Nov 5th when Newmont Goldcorp (NEM) steps into the earnings confessional. We expect gold miners to report higher earnings this quarter than last, because the price of gold was about 200 USD higher this quarter. That may not be enough to spark the next upleg, but it will keep investors’ attention primed, so they should more readily switch into gold at the next big sign of increasing economic troubles.
The Gold Enthusiast
DISCLAIMER: The author has no direct position in any security mentioned in this article. The author is long the gold sector via positions in NUGT, JNUG, a few junior miners, and covered calls on parts of the NUGT and JNUG positions. The author may initiate new covered call positions in NUGT and/or JNUG in the next 72 hours if market conditions warrant.
The SPDR Gold Shares (GLD) was trading at $140.24 per share on Monday morning, down $0.22 (-0.16%). Year-to-date, GLD has gained 13.42%, versus a 12.70% rise in the benchmark S&P 500 index during the same period.
For 30-plus years, Mike Hammer has been an ardent follower, and often-times trader, of gold and silver. With his own money, he began trading in ‘86 and has seen the market at its highest highs and lowest lows, which includes the Black Monday Crash in ‘87, the Crash of ‘08, and the Flash Crash of 2010. Throughout all of this, he’s been on the great side of winning, and sometimes, the hard side of losing. For the past eight years, he’s mentored others about the fine art of trading stocks and ETFs at the Adam Mesh Trading Group.
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