IAC, thank you for the kind words. I will respond to your reply with a couple of posts. The first is regarding Gold.
While many have spent countless columns writing about the new paradigm of Gold and the various supportive fundamental reasons for owning it, few have ventured into what appears to be a more obvious reason for the decade long rise in the price of Gold - The Financialization of Gold.
With the Commodities and Futures Modernization Act of 1999, derivatives, and finally, the precious metals ETF's, we've seen Gold move from an often times boring commodity to one with all the momentum and volatility of modern financial instruments. Whereas in the 1990's most of the options, futures, and hedging was done by the miners and those taking physical delivery, in the 2000's much of the action has moved to speculators. Sure, there was a supercycle bottom in 2002, but I'm of the opinion that while the fundamentals for owning Gold may have been compelling, the most logical reason for the rapid rise was because it was able to be treated no differently than any other modern financial instrument.
Understanding the financialization of Gold means we can step back from the story narratives and see it for what it is - a financial instrument that speculators can move using leverage and algorithms without ever needing to take physical delivery. Sure, it helps to have compelling fundamentals to support speculation, but it is not a necessary ingredient since the financialization has happened.
Do not get me wrong. I do support owning physical Gold if your government or currency is showing signs of collapse. It is also a great store of value in high inflation environments. However, outside of India, Argentina, Japan, Spain, Italy, and some other unstable places like Egypt, Syria, Mexico, Venezuala, etc, there is not a real compelling fundamental imperative to own Gold. Who knows, we may need to have a lot of our own personal physical gold here in the USA in the future. However, I'm pretty certain we'll have plenty of notice to make that move.
I've found through the years that most investors are moved by story narratives. Narratives better support all level of personal and cognitive bias. Narratives work particularly well when you tap into belief. I am of the opinion that while fundamentals are important, it all starts and ends with charts. Charts allow the objective analysis to help subordinate the rush to subjective judgment. It is not easy, but I think you have found that through the use of charts, we can better analyze, position, and profit.
Gold charts appear to best support a rise to back-test the $1,500 resistance, then a drop to test the $1,050 support. The pattern in Gold appears to suggest a long, meandering trading range above $1,050 if it does drop to make a final low in that area. I suspect that range will go from $1,050 to $1,600 over the course of several years. Think of it as an a-b-c correction off the all-time highs, with the "a" down to $1,050, a "b" up to $1,600, followed many years later by a "c" down to $1,050 or possibly even $850 to finish the correction off the all-time highs.
The monthly S&P 500 chart from the year 2000 on could be informative for Gold, as that corrective a-b-c pattern may be in play. |
