STRAP. YOURSELF. IN.

Wednesday, 5 August 2020
Melbourne, Australia
By James Woodburn

 

Gold was the star of the show in overnight trade in the US. It breached $2,000 an ounce for the first time.

At time of writing, the spot price of gold was US$2,016 an ounce. In Aussie dollars, it breached $2,800 an ounce for the first time.

Gold’s surge has been relentless lately.

That it will correct at some point is a given. But because it hasn’t done so in a meaningful way yet, it’s creating a big fat case of FOMO among many investors.

If this is you, then it’s worth remembering Shae’s advice to readers of her Hard Money Trader service just a few weeks ago:

With gold breaking out into all-time highs, there’s a risk that FOMO (fear of missing out) will grip some people and they’ll rush into buying physical gold.

However, history says that waiting until after a price peak can present a better buying opportunity.

Check this out:

US dollar gold price 1999–2008 monthly/yearly chart


Port Phillip Publishing

Source: Trading view

[Click to open in a new window]

Historically, gold has a habit of falling after a big rally, while still maintaining an overall uptrend.

What I’m trying to show you, is that after a massive price spike, the precious metal tends to sell-off in the first couple of months after it. Meaning if you’re looking for the time to buy physical gold, that’s when the best buying opportunity is.

Now I don’t think we’re in a for a 23% price fall (I’d probably swap everything I own for gold if it did drop that low), however a 10–15% fall is entirely feasible.

A 10% drop takes us back down to US$1,780 and a 15% drop takes it back down to US$1,679.

I’m banking on the former over the latter.

That’s the problem with FOMO, the fear of missing out means you don’t have the patience to wait for the correction. You think it will never come.

Shae’s chart should dispel any notion about that though.

Markets are always looking for balance. Corrections follow rallies just as night follows day.

The real challenge will be in having the courage to buy in during a correction. That’s much harder to do than buying into a rally. Which is why (in a bull market) those buying the dips are rewarded more than those buying at or near the peak.

So, if you’re looking to get some gold exposure or want to add to it, I would follow Shae’s advice here and wait for the correction.

If you’re sitting pretty, there’s no need to do anything.

The most important fact to remember is that gold is in a long-term bull market. In a bull market, the smart thing to do it to sit and hold on. That’s very hard to do. That’s why it’s called a bull market. It’s very hard to ride all the way up without getting bucked off.

It brings to mind the famous quote from Reminiscences of a Stock Operator, a book about Jesse Livermore:

It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine–that is, they made no real money out of it. Men who can both be right and sit tight are uncommon.

If you’re in gold (or gold stocks) sit tight!

The market is telling you you’re right. It’s trending higher. There is nothing more to be done.

And if you’re waiting for a correction to add to your holdings, listen to Shae. You can check out her work (and portfolio) here at Hard Money Trader.

Shae’s view all along has been that we are entering the final stages of this decades old bull market. That is, corrections will be shallower and rallies more dramatic from here on in.

As you can see in the chart below, ever since gold broke out of its bear market base last year, that has been the case: sharp rallies, short and sharp pullbacks.


Port Phillip Publishing

Source: Optuma

[Click to open in a new window]

Why though?

What’s going on?

This is where the ‘final’ bit comes into it.

The fact that gold is entering the ‘final phase of its bull market’ is the mirror image of saying the monetary system is entering its final phase.

Now, given this monetary system has been in existence (in one form or another) since the end of the Second World War, ‘final’ is probably a lot longer than you might have in mind. I’m thinking at least five years.

If that’s the case, you could be in for some explosive price action in gold in the years ahead.

But wait a minute. Where’s the evidence to suggest that the monetary system is in its ‘final’ stages.

Well, gold rallied to an all-time high at the same time as the US 10-year bond yield fell to a record low. And yields fell to a record low DESPITE the Fed and central banks around the world ‘printing’ unprecedented amounts of ‘money’.

But guess what?

It’s not working.

The bond market is signaling coming deflation. It is laughing at Jay Powell’s attempts to create inflation via ‘money printing’.

And gold is laughing along with it.

Gold is now trading as a monetary asset, not as a commodity.

That is a very important distinction.

I’m no gold historian, but the last time that happened was in the late 1970s, culminating in the 1980s crazy bull market peak.

If this trend continues…well…what can I say except:

STRAP. YOURSELF. IN.

***

PS: Be sure to tune in on Friday. Woody, Murray and I will be chatting about the markets to see if we can make sense of what’s going on. Since our last get-together, the Aussie market has been up and down. But for a whole lot of effort, it’s ultimately gone nowhere.

There’s been some interesting developments lately. So it’s time to bring you up to speed on what’s going on.

Cheers,
Greg