By Peter Grandich
August 27, 2019
Back in late summer of 2018, I made a decision that gold, and related investment vehicles, was a much better choice for capital gains opportunity than both general equities and the overall U.S. stock market going forward. I chose to hold just one general equity and to instead own gold, numerous gold ETFs and one individual mining stocks as my personal portfolio. Gold was on either side of $1,200 during that timeframe.
Since then, I continued to suggest gold, and those related items, as my personal choice over the U.S. stock market. As of now, it has proven to be a much better choice with gold up 30% and with gold-related vehicles up an average 100% or more. This contrasts, in the same period, with the flat-to-down general stock market. Gold and gold-related items have even outperformed general equities just in 2019.
While many of the remaining ‘gold bears’ and those who claim that “gold’s rise is basically behind us”, they are mostly the same folks who said the same at $1,200 and who also claimed that gold was going under a $1,000 too. Words like “relic” were common in their description of gold, and many of them even claimed that bitcoin and cryptocurrencies were the ‘new gold’. How’s that working out for them?
While I had a bias in favor of gold for the first 30 or so years of my career in and around the financial arena, I have had no such bias now for the last 5+ years. I neither promote investment vehicles that benefit from my stance nor am I employed by anyone who would benefit from my bullish talk on gold. My motivation has simply been 100% for personal profit motives that have led my viewpoints.
When I was in the ‘soothsayer racket’, we were mainly as good as our last call. Having learned to eat a lot of broken glass from my days of carrying around a crystal ball, I hope to remain fairly humble despite having one heck of a year over these past 12 months or so. And, I also have come to learn, sometimes the hard way, that resting on one’s laurels may stroke the ego, but it does nothing for the pocketbook going forward.
So, with that in mind, here’s my latest observations of gold and gold-related vehicles, keeping in mind that I, too, put my pants on one leg at a time.
It’s been my opinion that gold would have 3 stages to go through:
- Phase 1 was to break
and stay above a resistance area that had lasted for years between $1,350 –
$1,400. - Once it achieved that,
I felt that Phase 2 would see gold pop to around $1,500. After a period of
time, I felt that area would become ‘a line in the sand’ for the many gold
bears and for the “Don’t Worry Be Happy Crowd”, who view gold
as ‘kryptonite’ to their punch bowl that has maintained
financial assets as the only perceived game in town. - Once these bears and
weak-kneed bulls had run their course, gold would begin a Phase 3, which would
be its longest and most-volatile. However, this phase is where gold makes its
biggest move to a new, nominal all-time high within 3 years or less.
Given Friday’s run-up and this week’s follow-through, it appears that Phase 3 has begun despite gold being very overbought on some technical charts. One of the very few traders that made money trading markets over the years (and I’m not one of them), told me late Friday that I should not to be too concerned how overbought gold was technically. He advised me that, in the early stages of a mega bull market, it’s not uncommon for much-longer periods of being overbought. He noted that it is this phase that leads many, who never got on board early, to remain waiting for a major pullback, or correction, and either miss the play entirely or enter near the end of the run.
He’s got something there as I was considering putting some trades back on that had been most profitable to me multiple times during the last year, but felt the overbought condition could lead to a test of at least the $1,480 support area and therefore I should wait. It appears that “he who hesitates is lost” when it comes to gold now. I do still have a very large core position that I will not consider selling until we’re well into the third phase.
So, you may be thinking, “Okay former whiz kid, what’s next for gold?”
Having first grudgingly accepting, and now gracefully recognizing, that the only person who has any real idea of the future is Almighty God, please understand, at my very best, I’m simply making an educated guess.
Let’s begin by remembering gold is hated and/or ignored by most of the financial services industry as it’s like ‘kryptonite’ to financial assets. So, you’ re just never going to hear the financial media, or those who make a living from selling financial assets, expound on the merits of gold ownership – period. This alone will keep many investors from ever owning gold at any time, since most novice investors, and sadly, many so-called ‘professionals’ are crowd-followers and they are unable to act unless it seems that’s what the majority is doing. I had found that most, who attended the conferences around the world where I had spoken, came, not to learn, but to get confirmation of what they already believed.
But also, be aware that there’s always going to be a group of pro-gold believers, who have been bullish on it for years – if not decades. Many times because gold is what they sell or what they do is influenced by the price of gold. That group, once known as the ‘hard asset crowd’ has been decimated by many factors, and at best, is a shell of their former selves.
Gold itself was in a trading range for years, and during that time, the industry that looks for it, mines it and also sells it in different ways, all fell on some pretty tough times. This is actually a bullish factor now but try telling that to those who went from gold to pot to cryptocurrencies, trying to make a living. But again, as it always does, adversity creates opportunity. The lack of finding numerous major new gold deposits for several years now, and even with $1,500+ gold you’re not going to see a bunch of new supply come into the market overnight, and gives credence to the argument of “Peak Gold”.
So, the supply side of gold, is not expected to become a negative anywhere on the horizon. But just like it takes two to tango, one also needs a bullish demand side to go along with a bullish supply argument.
While I’ve been absent from the metals and mining industry since 2014, I still kept an eye on it and, of course, with both my hands holding onto my wallet. While watching that which can now only be described as a highly-driven technology casino, the U.S. stock market was once was a place where people actually bought stock to be part-owners of a company. But now, many playing that market don’t even know what the company does or even cares. Today, investment decisions are made for quick profits generated from anything that seems to be moving with momentum. And boy, does gold now have that going for it. So, whether it’s a headline-driven algorithmic computer program or some 29-year-old day trader who thinks that mathematics will make him rich, neither can regularly beat the stock market and will learn like the rest of us “old-timers”, that only dishonesty or a tremendous amount of luck ever allowed it to be beaten on a regular basis.
Believe it or not, the easy part is now over. While gold still has hundreds of dollars more of upside potential, it’s going to be more volatile and harder to hold on to, then it was the last 12 months.
One of the key factors, that I anticipate will drive gold in the coming weeks and months, is something, quite frankly, that I still can’t get my hands around – negative interest rates. Forgive me, but when I started in this business 35 years ago, I was given 10-year CDs at 15% to use as a door opener to build new clients. Very few investors were interested because it wasn’t too long ago that rates hit 20% and many felt 15% wasn’t high enough. Mind you, at banks, they also threw in a toaster with their CDs.While I can’t imagine that we will need to pay a bank soon just to hold our money, which I wonder will the roles be reversed and we get to ask them for a credit check and references now, I do know the gold bears argument of the cost of holding gold has disappeared – not that it was a stirring one for starters.
Another bullish factor for gold is the inevitable return to some form of QE-slash printing funny moneyhere and abroad. If QE 1 two and three didn’t work, maybe QE 29 will end up doing the trick.
Throw in currency interventions, nut jobs in North Korea, and Iran and numerous geopolitical issues hereand abroad, and of course, my belief that we won’t see another major equity bull market in my lifetime,and one has lots of good reasons to think gold still has a way to go.
I’d like to wrap-up by noting two things related to gold and my past history in the metals and mining industry.
First off, for years, I, and a small minority of folks, including the good people at GATA, had argued that gold was being manipulated. We were mocked, ridiculed and cast off as kooks. No one did it more than a man named Jon Nadler, as a person with whom I personally had battled. Nadler, who forgive me Lord, was, and likely still is, a nincompoop. Well, a series of charges and convictions for gold manipulation has occurred recently and I have yet to receive any “I guess you were right, Grandich” emails. I assume that neither did GATA, who were on the absolute frontlines in this battle. I’ll take satisfaction that we saw something critical most others didn’t recognize or refused to recognize.
Finally, I had given some thought about getting my feet wet again by doing some work in the metals and mining game. Thankfully, the good Lord made it clear where I’m supposed to be. But there were two videos that I have below in this posting, which are not only just hysterically funny, but also a good portrayal of what much of the promotion arm of junior resources was like when I was in it. These videos, and the old Mark Twain saying that “a gold mine is a hole in the ground with a liar standing over it”, should forever keep me from seriously entertaining going backwards in my life again.
In summary, I would like to say to those who did what I did a year ago, “congrats”. I do think gold is now in its most volatile phase now and, while no longer cheap, has enough momentum now to get to my ultimate target of a new, nominal new high within in 3 years or less. But the fact that the public is finally awakening to gold, suggests we’re likely to see some significant setbacks along the way.
Regarding mining shares, please keep in mind even if gold stops here and just stays between $1,500 – $1,600, there are going to be a lot of happy gold mining CEOs, who were looking at living off $1,250 gold but now have $300 or so more heading mostly to their bottom line.
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