It was obvious to many that the Covid monetary stimulus response would create inflation. It has. It was and is also obvious that this will spike Gold. It hasn’t.
The obvious answer is that after 7000 years of human fascination and use of gold as kind of various kinds of asset, Gold in the hearts and minds of investors is finally dead.
It isn’t. For starters precious metal physicals have been in high demand from not only individuals but from central banks, and has been hard to buy at a good price for the average investor because because retails precious metals have been hoovered up by investors doing exactly what you would expect for people worried about inflation. That shortage situation has improved but there are still sold out signs to been seen everywhere and fat premiums on the offer for stock should you want an ounce or two of Gold.
Yet still the price is not going vertical.
Here is the chart.
From a technical point of view you might say one mans ‘double top/head and shoulders (bearish) is another mans, ready to break out on a $1000 rally.
Here is a superposition of those ideas:
So once again, all you need to know is whether precious metals are going up or down. That is the only call you need to make. Aside from that another conclusion is, Gold is no going anywhere in a hurry. These outcomes, up or down, will take 2-3 years to unfold, an age in Crypto and an era in equities.
In the 70s gold rose a great deal and you would intuitively think Gold had a strong year after year rise as those times wereconsistantly painfully inflationary. The reality was gold didn’t just trend up every year, it actually feel for months through ’74, ’75 and ‘76.
In 1974 inflation was 11%, 1975 9% and ’76 6% according to US records, though I think many will remember it as much higher. However while money debased by over a quarter in those years, Gold fell from $184 an ounce to $134 by 1976.
Yet Four years later it had risen over 400%
This is of course all ‘gold bug’ talk and what attract investors to sing its praises, but it is easy to forget, Gold is not just an asset. Every year by close on to 5000 tonnes is mined but it doesn’t all go into vaults. 2000 to 2500 tonnes of Gold goes into Jewellery in a normal year and Covid knocked that demand down by 30-40% (perhaps as much as 50%) in 2020 and demand is still around 10% down at the end of 2021. Supply and demand is what forms price and a heavy drop in demand is hard to compensate for in the short term. Without doubt this drop in demand has helped to keep Gold subdued.
With the world emerging from under the dark clouds of Covid, Gold demand will recover but meanwhile there with no end in sight for the end of inflation it will become more attractive. This will give Gold a strong tailwind as the oceans of new money continue to grow still further. Demand for hard assets will continue to push prices and with the Jewellery market making a comeback, Gold is set to rally.
(Disclaimer: I hold Gold, gold options, Precious metal ETFs, Precious Metal Stocks and numismatics)