A speculator’s roadmap to riches

Tuesday, 9 July 2019
Adelaide, Australia
By Bernd Struben

From the day our grunts became intelligible, humans have been obsessed with records.

It makes you wonder who holds claim as the first world record holders.

Some cave dweller, perhaps, who built the largest manmade fire ever…up to that point. Or their neighbour, who hauled half a mastodon up the side of a mountain.

Back then it was relatively easier to be a record holder. You had a lot fewer people to compete against. And a lot less history. If you lived to see 50, you might well have been the oldest person on Earth.

These days we live a lot longer. And we keep meticulous track of records. Something I was reminded of when my daughter ran across my 1980 copy of Guinness Book of World Records over the weekend.

The ‘New! Giant 1980 Super-Edition!’, to be precise.

There are four pictures on the cover: the world’s longest limousine; the most tattooed woman; the longest handstand walk; and the biggest bee beard.

Yep, all great things to aspire towards.

There’s no entry for longest recession free run. A title Australia is still clinging to today.

But the book does list the record high date and level for the Dow Jones — 11 January 1973 when the Dow stood at 1051 points. By contrast, in January 1980 the Dow was at 867 points. Today it’s reached a staggering 26,806 points…just off its record highs.

Aussie markets, as you know, came within a whisker of setting new record highs last week. The All Ords — containing 500 of Australia’s largest companies — got within 21 points of its 31 October 2007 peak.

That record slipped further from reach yesterday, with the All Ords down 1.1% while the ASX 200 fell 1.2%. And at time of writing, both indices are down just over 0.2% in intraday trading.

Global markets have the jitters on rumours that the world’s economic growth engines might be in better shape than feared. In this case, a stronger than expected US jobs report. In a world where bad news is good news it’s only logical that good news is bad.

Someone please cue the central banks!

Then there’s gold.

Gold recently hit six-year highs in US dollar terms. And the yellow metal reached record highs in Aussie dollars.

That’s been great news for Australia’s gold miners, whose expenses are mostly paid in the local currency.

While gold’s slipped a touch from its recent highs, the case for far higher prices is growing stronger.

Mainstream analysts rightfully point out some of the factors supporting an extended bull run for gold. Namely central banks’ increasing bullion purchases — particularly in Russia and China. As well as ever lower interest rates. And, of course, rising global uncertainty over potential trade wars and shooting wars.

All good news for gold.

But as I wrote to you last week, our editorial director Greg Canavan has unearthed another factor that could see gold go far higher than mainstream analysts are forecasting. Not just to new records in Australian dollars. But surpassing the US$1,920 high reached in 2011 as well.

Greg reveals all — along with his four top Aussie gold stock plays to potentially make the most of gold’s run higher — in his new research report.

That was published earlier today. You can get the full details here.

More, after a look at the markets…

Markets

Overnight, the Dow Jones Industrial Average closed down 115.98 points, or 0.43%.

The S&P 500 closed down 14.46 points, or 0.48%.

In Europe, the Euro Stoxx 50 index finished down 4.22 points, or 0.12%. Meanwhile, the FTSE 100 lost 0.05%, and Germany’s DAX closed down 25.02 points, or 0.20%.

In Asian markets, Japan’s Nikkei 225 is up 8.30 points, or 0.04%. China’s CSI 300 is down 0.58%.

In Australia, the S&P/ASX 200 is down 14.85 points, or 0.22%.

On the commodities markets, West Texas Intermediate crude oil is US$57.38 per barrel. Brent crude is US$63.77. per barrel.

Turning to gold, the yellow metal is trading for US$1,394.55 (AU$1,999.64) per troy ounce. Silver is US$15.01 (AU$21.52) per troy ounce.

One bitcoin is worth US$12,344.21.

The Aussie dollar is worth 69.74 US cents.

Kazakhstan catches gold fever

Up top I mentioned how central banks’ recent buying sprees have supported gold’s run higher.

I cited China and Russia specifically. You can see why in the chart below:



chart image
Sources: IMF, PBOC, Bloomberg
Click to enlarge

According to Bloomberg:

The People’s Bank of China said Monday it raised reserves for a seventh month in June, adding 10.3 tons, following the inflow of almost 74 tons in the six months through May.’

But it’s not just China and Russia loading up on gold.

Also from Bloomberg:

Buying from central banks in the first five months of this year is 73% higher than a year earlier, with Turkey and Kazakhstan joining China and Russia as the four biggest buyers, according to data released on Monday by the WGC.’

Then there’s Poland, which has doubled its gold holdings over the past two years. Poland now holds more gold than any other Central European nation.

That gives you an idea of just how much central banks are influencing the demand side of the picture here.

Then there’s uncertainty…which is generally a boon for gold bugs.

When investors doubt what tomorrow will bring they tend to increase their allocations to gold. That’s why you’ll hear it called a haven asset.

But there’s one kind of uncertainty that doesn’t help gold. And that’s doubts over the US Fed’s next move.

Will the world’s most influential central bank move to cut rates later this month…or will it hold firm?

Fed Chair Jerome Powell is being pulled in both directions.

On one side we have a US economy that’s performing significantly better than the doomsayers would have you believe. In which case slashing interest rates now would be premature…at best.

On the other side we have Donald Trump. Trump wants Powell to cut rates to help ‘naturally’ devalue the US dollar against the euro and yuan. And of course to help stock markets reach new records in the lead-up to the next presidential election.

Over the past few days this particular uncertainty hasn’t seen gold move higher. Instead, Bloomberg tells me, it’s caused the biggest price swings in the gold market since late 2016.

Keeping that in mind, have a look at the following graphic:



chart image
Sources: Metals Focus, Refinitiv GFMS, World Gold Council
Click to enlarge

This graph came to me indirectly via John Mulligan. He’s the Director of the World Gold Council.

John sent the graph to Kerry Stevenson, who puts together Australia’s annual Gold Investment Conference. (This year it’s in Sydney, 24–26 October. Check it out if you can!) And Kerry sent it to me, among others.

Anyhow, I thought you’d find the gold demand breakdown interesting.

As you can see, market risk and geopolitical uncertainty, which garner so many headlines, only account for 30% of the annual gold demand. Central banks, also big headline grabbers, account for only 10%.

The biggest demand for gold comes from the jewellery and technology sectors…for a combined 60%.

Obviously gold is far more than just a ‘haven asset’. And whether global growth slows temporarily or not, the world’s population is going to keep getting wealthier. And bigger. In fact, the UN expects us to add 2.2 billion more folks to our current 7.6 billion by 2050.

Adding it up, it’s hard to imagine gold not breaking through its 2011 record high of US$1,920 per ounce. Or AU$2,782 at current exchange rates.

And if Greg Canavan is right on his unique supply side insights, gold could break that record far sooner than you might think. And run far higher.

You can find out why — alongside how to play this for potentially eye-popping gains — by clicking here.

Cheers,
Bernd