The last few days we’ve seen gold trading below the $1500 mark. Yesterday though, gold’s price dropped just above $1465 per troy ounce.
It seemed as the market was overbought and a number of other issues affecting gold’s price seemed to defuse. Firstly, the Europeans offer to accept a delay in Brexit deal, which helped the pound gain 400 pips. Then, the news from the Fed meeting in September, indicated the possibility of another interest rate cut will be off the table. And last but not least, the trade talks between the United states and China were looking better.
Therefore, the worn out market was not met with great enthusiasm from the investors who were reading that gold at $2000 and silver at $25 was imminent. Yesterday’s gold’s and silver’s performance was a negative surprise for gold investors.
Although, the gold market doesn’t look good, the fundamentals are there for gold to become bullish again. The global recession is imminent, the stock market bubble is real, the European central bank will continue its negative interest rate policy and the Fed will follow with even lower interest rates too.
Gold’s price will go up, but it will not be on a straight line. Gold and silver price might drop even lower, (gold could get as low as 1400) but at the end gold will go up because, the fundamentals are all there. Remember, investing in gold is a long term investment and no investor lost in the long run.
The economic outlook is getting from bad to worse.
The global debt bubble.
The covid-19 effects on global economy
In my mind, gold will consolidate for a while as the formal withdrawal of the Hong Kong extradition bill, will remove fear from the global markets. Also, in Britain a bill is about to pass that will forbid a no deal Brexit. These two events will remove fear from money managers around the world, as they will see fewer risks coming out of Hong Kong and Britain.
As a result, gold will consolidate for a while until the various central bank meetings take place in September. Central banks will continue their monetary policy as it is, we all know that. In fact, Christine Lagarde, the next president of the European Central Bank, already announced the continuation of Mario Draghi’s policies regarding quantitative easing and negative interest rates.
Silver soars like there is no tomorrow, surpassing each of our target prices of $18,00 and then $19,00. On top of that, the silver to gold ratio has fallen from 90-1 to 79-1 and we expect the ratio to continue to narrow, while gold and silver continue rallying. Remember, it is widely accepted that the gold to silver ratio should be at around 60-1.
According to Frank Giustra, the chairman of Leagold we are heading for a recession worse than the one we had back in 2008 and I agree with him.
Global debt has actually doubled since the 2008 crisis. In fact, global debt value was fueled by “cheap” money such as quantitative easing and low interest rates.
The overpriced and overvalued Stock Market, has also been fueled by massive amounts of easy money. The Stock Market has been moving up for an unusually long time and as a result, people have become accustomed to that type of behavior. They think this will keep going on forever, which is not the case and at the end they will be hurting themselves. A thirty percent fall in the markets will be normal to see.
We are long overdue for a recession, as this was the longest economic recovery ever. If we take a better look at the recovery we’ve seen, it was a fragile anemic recovery. The growth we’ve seen all these years was nothing more than 2% or 2,5% annual growth, compared to 5% and 7% healthy recoveries in the past.
If the bad scenario takes place, we could see massive unemployment, large corporation collapse, currency war, hyperinflation, and geopolitical uncertainty.
Although, a serious investor should always have some insurance in his portfolio, and the only insurance is gold, nowadays it will be reckless for an investor not to own gold. As the bad news continue coming in, many investors increase the percentage of gold in their investments. Best gold investment for me is to posses physical gold.
Silver too can be handy, as it is undervalued-underpriced and it also has the gold to silver ratio distance to cover. Furthermore, silver tends to follow gold as it rises and as it falls. A physical ownership of silver is always a better investment.