Gold and Silver Updates- Still the Best Investment
Living in Vancouver, one cannot ignore the mining industry. Not only was it mining that made BC (long before real estate, forestry and movie productions), but mining is to Vancouver what technology is to San Francisco.
Over 70% of the mining industry financing gets done in this city. Not to mention the numerous mining conferences here. I attend the Metals Investor Forum here every few months, and go yearly to the big Vancouver Resource Investment Conference in January.
I have an Archaeology background, not a Geology background, but luckily I have always been interested in the mining industry and commodities for many other reasons.
First of all, I have studied economic history and understand why classical economics favours a Gold standard rather than the mercantile/keynesian economic model which favours soft money. A lot of problems in today’s world is because of soft money which allows government to devalue and get bigger due to the keynesian aggregate demand theory.
Although the Gold standard has some issues, it is the best system of money we have devised…as of yet. Human history is CYCLES of hard money (gold standard) and soft money (fiat). These cycles repeat themselves and we are very near the end of this fiat/soft money cycle.
Gold is the best money because of its high stock-to-flow ratio, meaning that whenever Gold price increases either 2% or 100%, the output mined every year and added to the stock of Gold (all the Gold we have ever mined) is 2-3%. This is because Gold is rare and very difficult, and expensive to extract. Nothing will come close to Gold until Bitcoin in 2025. You can read my thoughts on Gold vs Crypto here… and why governments will “hijack” the Blockchain.
Secondly, I follow commodities because it really is the lifeblood of the world. Environmentalists may hate this, but whatever humans cannot grow, we must mine. These materials and commodities are essential for us. Mining is not going anywhere. Commodities are very important for geopolitics. Of course everyone sees this for oil, but monitoring commodities is really akin to having your fingers on the pulse of the world.
Following my post on the reasons why Gold will break above $1600, I have decided to provide a short update on the precious metal markets.
Again, I still believe Gold and Silver will be the best investment for the next few years. I am not alone in this, many billionaires such as Ray Dalio (who has probably started this rush into Gold by large funds), Stanley Druckenmiller, Paul Tudor Jones and Sam Zell have in some way touted Gold going forward and have advocated increasing or opening a position in Gold.
As a trade, sure you can play the downside move, but in the long term Gold will be much higher.
I have said the reason why Gold goes up (and why the US Dollar CAN go up in the same time), is because Gold is CONFIDENCE CRISIS investment. Gold goes up when people start losing confidence in governments, in the central banks, and the fiat money. All of which we are seeing currently and will exacerbate going forward.
The next US election will see people protesting violently on the streets regardless of what political party wins. The division and hatred is that palpable. Central banks are running out of ammo and cannot admit their monetary policies have failed, more on this soon. Finally, western governments are cutting interest rates and attempting to devalue their currencies. It is a race to the bottom with central banks trying to outdo one another.
Many say Gold is an inflation hedge. I argue inflation is more psychological. Inflation occurs when there is a confidence crisis. It is the same thing. It is when people lose confidence in their government, the banks and the fiat currency (which generally inflates or in extreme cases, hyperinflates).
I believe this environment going forward is what will cause Gold to outshine every other currency and investment. In fact, as mentioned in my Gold over 1600 post linked above, Gold against many other currencies is already at all time highs and continues to make all time highs! It is just against the US Dollar for which it has not happened yet.
Let us look at the weekly chart of Gold:
If you have done my course, then you will understand market structure.
For those who have not, all markets move in three ways: uptrend, range and downtrend. That’s it.
These trends are composed of swings (what we call waves in the course and also why it influences the UnchartedFX logo), these swings are composed of what we call higher lows and higher highs for an uptrend, and lower highs and lower lows for a downtrend.
Gold on the weekly level has broken above the very important resistance zone of 1380. A zone it has been under for about 5 years! This break is very important and tells us that we have completed the “range” cycle for this market.
After this break and move higher to our resistance zone of 1560, we have yet to make our first higher low. Again, this is expected according to market structure. It has to happen if we are in an uptrend.
For those in the fibonacci camp, if you fib this move, the 38.2 fib actually is at 1440, where we bounced this week.
Now I am not saying this means we are going to make a higher low right here, but I am saying that as long as we remain above 1380, Gold in the long term will be breaking above the 1560-1600 zone because it has to in order to confirm a higher low.
The Gold market is looking extremely exciting given the chart and market structure, but also because of the environment we are in that will lead to an inevitable confidence crisis.
So what will be the catalyst for Gold? Will it be the US- China trade war? Something which I have spoken about and why China can be patient.
I believe this geopolitical environment is also great for risk off assets like Gold and Bonds, but the Federal Reserve I believe is what we will have to watch.
Currently, the market believes the Federal Reserve. The Fed has said they are pausing on rate cuts. Again, if you follow my work, I have outlined why central banks are stuck and are cutting rates and going back to QE. What they have to do is to maintain confidence in what they are doing is actually working. This is why the Fed uses excuses like the trade war for cutting rates while maintaining the strong economy narrative.
I believe the Fed WILL be cutting interest rates come Decemeber of this year or January of next year. This is when people will then begin to understand that the Fed is stuck. They they will be cutting rates further. People will then understand that we are stuck in a 0 interest rate and stimulus forever environment.
I believe the Gold breakout above 1560 will coincide with this rate cut announcement and then will gain momentum as the market realizes what is happening.
Big funds will be looking to the GLD ETF, physical Gold Bullion, and the Gold Royalty companies. They will not like too many primary miners due to their costs and the debt on their balance sheets. The aforementioned assets are the safest way to profit from this Gold run.
Now everyone who trades knows about the junior mining industry. I truly believe that we are going to see quite the mania in these stocks.
When Gold breaks above 1600, and begins to make all time new highs, these junior Gold stocks will pop. Really due to the fact that there will be a Gold mania and many who are chasing yield will want these massive gains.
Millennial and new money will be the key and will add a lot of momentum to this move. This money participated in the crypto bull market, participated in the pot/marijuana stock mania, and are awaiting the next mania. I believe what we saw with alt coins in the crypto mania will occur with the junior mining stocks when we see this gold mania.
Be ready and position yourself for this first.
A quick look at Silver:
It is very difficult for me to hide my love for Silver. I think it will easily be the investment of the decade.
As long as we remain above 16.00 we are bullish silver. Again, we have yet to make a higher low yet which could be occurring now. We will be over 20 by the end of next year.
Silver still retains a monetary metal aspect and this is why it will do well.
Gold is a 7 Trillion dollar market. Silver is less than 1/10th of that. This means if large amounts of money pour into silver, it will be enough to cause the price to outperform Gold. This is why many refer to silver prices moves as “silver is gold on steroids”.
There really is not very many PRIMARY silver miners, so there is an opportunity there too. Silver’s stock-to-flow ratio is not the greatest, and this is why Asian nations (mainly China) had to drop the Silver standard. However, in today’s world, not enough money has been spent to look for silver, and MAG Silver is the only new primary silver producer in a very long time.
In summary, do not get too emotional over the day to day price movements in these metals unless you are a trader. As an investment, both of these metals have still held up really well recently when in times past we would see the price get beat down really fast.
The market structure is still intact, and the environment is ripe for a confidence crisis. Patience. Continue to position yourselves for this once in a lifetime opportunity.
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