I’m not a “gold bug,” never have been, never will be.
A “gold bug” is someone who expounds the many virtues of owning gold, including that it’s a “store of value,” a “safe-haven” investment, an inflation hedge, and because its been hoarded by investors, central banks and governments the world over, it’s price is always going to rise.
The reason I don’t trade gold all the time is it’s not volatile enough, meaning it doesn’t move up and down enough for me to watch it and trade its ups and downs.
The reason I don’t invest in gold for long periods is because I don’t think it’s going anywhere, and I’d rather place my capital in stocks or other instruments I think are moving a lot higher.
But, that doesn’t mean I don’t buy, sell, trade, and invest in gold, especially when I see a good set-up, meaning a set of reasons gold’s about to make a move, I’ll jump in.
This is one of those times.
Gold’s Second Act
Gold’s just had a good run-up. After trading sideways for more than five years, gold started moving out of its trading range in July 2019.
By the time Covid-19 hit, it was 17% higher.
As the pandemic spread, first as a “safe-haven” investment, then as a “retail” darling, gold took off.
Spot gold, or the cash price per an ounce, reached an all-time high of $2,075 on August 6, 2020, according to USAgold.com, eclipsing the old high of $1,891, reached way back in August 2011.
Not only was gold looked as a store of value and a safe-haven as the pandemic, at first, crashed stocks and corporate bonds, hordes of new “retail” traders, non-professional mostly new investors who were opening millions of commission-free trading accounts across all the country’s discount brokerages, rushed in to buy faltering stocks and gold, as both short-term trades ,and in gold’s case, more of a long-term holding.
But when stocks started to roll over on Thursday, September 3, 2020, one day after the Nasdaq Composite and the S&P 500 reached new all-time highs, gold was just another position that retail (and other) investors sold to take profits and avoid losses as both stocks and gold kept falling.
Spot gold fell to $1857, down 10.25% from its all-time highs, in about a New York minute.
And now that it’s in “correction” territory, I believe it’s a buy.
Why We’re Buying Gold on This Dip
There’s more to buying gold on this dip than just buying it because it’s down 10%.
There’s the coming election, more fiscal stimulus on the horizon, more money-printing, interest rates being kept lower for longer, the prospect of inflation ahead, and maybe, most importantly, retail traders and investors are going to get back into gold because they see all the above “narratives” playing out.
Odds are this election is going to be a mess, any which way you cut it. With outcomes maybe not being able to be decided for days, weeks, or longer, for potentially both the Presidency and disputed Congressional races, investors are likely to sit on the sidelines when it comes to equity positioning. But gold makes sense as a place to park sidelined cash, for all the usual reasons.
No matter who wins what, the country needs more stimulus, and it’s going to get it. That will add to deficits and fears of further currency debasement. Gold’s a standard go-to investment when facing currency debasement.
The Fed’s not going to raise interest rates, for years. In fact, they may have to drive them into negative territory. Real returns on Treasury bonds are already in negative territory when you subtract the inflation rate from the nominal yield on any Treasury bill, note or bond. While its true gold doesn’t have any yield, at least it doesn’t have a negative yield. That will make it attractive as an alternative to bonds.
Then there’s the prospect of inflation down the road. The Fed’s already said it will raise its inflation target accordingly, to accommodate rising inflation, if and when we see it. That means they see it coming. Gold is a bona fide hedge against inflation. That’s another reason investors will pile back in.
And because “last shall be first,” all those retail traders and investors, the ones that used to get duped by Wall Street, are now the tail-wagging the dog. They’re going to see all these “narratives” as sure as we just enumerated them, and they’re going back into gold, probably in a big way.
If you can understand the narrative, and I hope you can, you should see why now is the time to get into gold.
I want to buy this dip, and you should too.
How to Buy Gold to Get the Best Bang for Your Buck
Instead of gold bullion, I like buying the SPDR Gold ETF (NYSE:GLD) to gain exposure to gold’s rising price.
GLD made new all-time highs at $194.45, the same day spot gold hit its all-time highs. And GLD fell 9.49% when spot gold fell 10.25%, so it moves mostly in lock step with spot gold prices.
For me, GLD’s now a long-term hold. I like buying it right here, down almost 10%, and I’d buy more if a short-term equity market selloff causes more cross-asset selling and gold falls further.
I think gold’s going to make new highs after the election, and probably higher highs by the end of the year.
Like Jimmy Buffett says, “When that bug bites you, you live with the sting.”
Until then,
— Shah
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Source: Total Wealth