Assets need use cases and ones that catch the imagination but yet don’t have a use case don’t stick around as valuable for long.
Gold has use cases, once flight capital, once dentistry, but these have been superseded. Gold is still a big deal in electronics and in trinkets. People still love it for historic and aesthetic reasons but at $100m a tonne that’s not enough to elevate Gold. It is an inflation hedge but that is partially counteracted by the march of technology that allows cheaper and cheaper extraction.
I look at gold this way from a long term perspective. Copper is for small change, silver is for proper transactions in everyday life, Gold is for big purchases. As a currency at the top of the monetary food chain Gold is an intergovernmental currency and most importantly its use case is it’s the currency of war. Paper promises does not cut it in a to the death war. As such the more tense the world becomes the more Gold governments need to vault as in its simplest form Gold is a strategic necessity.
Here we are with global tension rising. So here we are with Ga Gold price trajectory.
So this the following chart is my thinking based on these axioms.
Tension is going to increase dramatically even from these levels.
Listen to the US administration. What is it saying? It says it is squaring off with China.
That really is terrible news.
China is loading up on Gold. No surprise there. Also Poland +29 tonnes in February alone, Turkey, Czech and India. You can see the tension theme clearly.
So while many will be talking about de-dollarisation, treasury bond-aggedon, runaway inflation, all the same tropes, that is not necessary for big rises ahead. However if any of the old tropes kicked in, then the rip in the price of Gold would be monumental.
However lets look to the downside. And it is….?????
For a downside we need global calm to break out. That feels like a low probability trade to me.
In the new reality of political lashing out, who is going to be taking global dialogue off the Adderall and onto the Prozac?
Some may ask what happened here?
All markets are lashed together by long standing arbitrage. When liquidity rushes for the exit, those relationships yank valuations. A bifurcation and reset follows. The tariff slump which is still under way, ruptured many such trades and now the money is being reapplied and some of it appears to be flowing into Gold. Perhaps something wicked this way comes also, but Gold does not need acute disaster to drive it higher. In fact it’s the opposite. It is the chronic rise of global tension that will drive the price. For that driver there is no reversal in site.
…and yes I hold Gold, quite a bit of it, but no I’m no long term gold fanboy, in fact I’d much prefer to make my money in equities in a placid world.
Sadly that is currently not an option.