What a shakeout!
It is a major plummet for gold, which was breaking 52-week highs just four months ago.
This is precisely why Portfolio Wealth Global has sounded the alarm on precious metals a number of times this year.
Nothing is riskier than investing in commodities because no single individual controls the price. Right now, there are far fewer buyers of gold than sellers.
Sellers are unloading their positions for many reasons:
- Stocks are hitting all-time highs, but, by some measures, such as the ones we look at, stocks also have much more upside right now than downside.
I continue to hold my view, according to our proprietary analysis, that the NASDAQ will hit 10,000 points, the Dow Jones will break the 32,000 points barrier, and the S&P 500 will cross the 4,000 point threshold.
This is one primary and fundamental reason why gold is being dumped, as it was during the run-up to the Dot.Com top.
- Interest rate spreads between what the Treasury offers and what other countries will pay is increasing, which is causing a rush to dollars.
Institutions have preferred the GLD, the go-to ETF, as a way to hedge stock holdings, as well as a strategy to diversify inflation risk, but big, impactful, runaway inflation hasn’t appeared yet.
They’re throwing in the towel… for now.
- Gold is not crashing against all currencies.
This is important to keep in mind. Gold and silver are trending up when measured against other currencies, but international investors, as well as U.S.-based ones, are trading out of it.
This is what a shakeout feels like.
The price is still up double-digits since it bottomed in December of 2015, but now we’re clearly in an environment in which both the spot price and the mining stocks are cheap, at the same time.
It is a critical fact, since the last time this happened, it was 2009, and they rallied side by side.
Portfolio Wealth Global doesn’t see commodities as the top investment idea right now, but it does view it as the most undervalued asset class on the planet.
We still view many sectors as much more favorable at the moment, but the opportunity in commodities is absolutely enormous.
The key, at this point, is the behavior of the mighty buck. If it continues to soar, approaching the 105 range on the DXY index, which I predicted would be its top, if it booms (which is happening), then gold could sink another 10% from here.
Remember, as long as the Federal Reserve is the only central bank tightening the number of currency units, the Dollar reigns supreme.
In the 2004 to 2006 hiking cycle, the FED wasn’t tightening at the same time, so gold traded differently – it soared, as inflation fears mounted. However, this time around, with fewer dollars in circulation every day, the inflation scare is not present.
The biggest reason to own gold is geopolitical risk right now, but investors suspect that President Trump is playing hardball and isn’t going to follow through on his threats.
No American is in favor of war at the moment, and Trump is going to be isolated if he tries anything.
The world is calling the bluff and betting on America for the first time in years. You may not like it, but, as an investor, this is great.
Since investors rarely put more than 10% into commodities, seeing gold fall by a few dollars doesn’t hurt their overall net worth because their stock portfolios are going ballistic right now.
Remember that a world with $2,500 gold is a scary one, but a world with sound economies, rising standards of living, and more opportunities is better.
The jobs market in today’s world punishes entry-level workers and mid-level employees, which makes it impossible to sustain a normal, western lifestyle with an average wage.
Gold will not save you from these changes, nor will lottery tickets. Today’s world rewards thinkers and leaders, who are able to come up with ideas and inspire businesses to grow.
These are the rules of the game, but like any other one, based on credit and debt; it will have hiccups, from time to time, which we will exploit in the markets.
Then, one day, it will also reset, and by owning chaos hedges, your family will be better prepared for the mass exodus from fiat.
Tom BeckResearch Partner, PortfolioWealthGlobal.com
This work is based on SEC filings, current events, interviews, corporate press releases and what we’ve learned as financial journalists. It may contain errors and you shouldn’t make any investment decision based solely on what you read here. It’s your money and your responsibility. The information herein is not intended to be personal legal or investment advice and may not be appropriate or applicable for all readers. If personal advice is needed, the services of a qualified legal, investment or tax professional should be sought.
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