I wrote my first article on this website advocating for holding some precious metals like gold and silver over four years and four months ago on 19 March 2016. At that time gold was trading around $1,250 per ounce.
Now for the first time since September of 2011 gold is trading northwards of $1,900 per ounce. This is a 52% increase in price.
So with gold trading near the September 2011 high of $1,924 I’d like to look back at some of the previous statements I made about gold.
In November of 2019 Gold was trading in the $1,520 to $1,445 range. It had suffered a large interday drop and I predicted gold would reach $1,600 in 2020, which it did just a couple monthly later in January.
While the recent price action looks rather bearish over the next 3-6 months I think gold will reach $1600 in 2020.
From "Gold Receives a Severe Drubbing" 9 November 2019
Back in 2017, a few days after President Trump was sworn in, I predicted gold would reach $1,920 during his first (and probably only) four years.
I also think the dollar will lose a great deal of value and the price of gold will outperform and reclaim the 2011 high of $1,920.
From "Trumped Up Economy" 22 January 2017
Gold has not hit $1,920 yet but it is within an Andrew Jackson (or Harriet Tubman?) of that price.
Back in 2016 I predicted gold would reach $2,000 or higher.
I would have preferred to have bought gold at the lows of $1,040, but as yet I don’t have a crystal ball that allows me to perfectly time the bottom of markets and I firmly believe that based on the fundamentals gold will make new highs in excess of $2,000.
From "Inflation Destroys Dollars" 19 March 2016
Gold isn’t at $2,000 yet but it seems increasingly likely. I of course can’t predict the future, just make educated guesses on price and time. But so far gold has been a solid investment. The technical damage after the 2011 high has been filled in and the chart is looking strong.
Silver has done well in the very short term. It’s previous high was almost $50 in April of 2011. It’s been steadily trending downward since then, making a low of $11.64 in March of 2020. Since then it has rocketed back up to $22.82 in a 96% increase in just a handful of months. It is still well shy of the $50 high but silver could provide a better value and more upside potential than gold. However, it tends to be more volatile.
As of writing this article spot gold is trading at $1,783. August gold futures are trading at $1,800. Gold hasn’t been at the $1,800 level since November of 2011, although it came close in October 2012.
August Gold Futures
Silver is up to $18.19.
I’ve been bullish on gold since 2013. I think gold has more legs to go higher. There is a lot of uncertainly right now in the short term. The November election, Covid-19, social unrest, and of course the national debt. Gold is often used as a safe haven to park money amidst uncertainty.
Inflation Pressures
With many people unemployed, that will put downward pressure on consumer spending. However, between credits cards, stimulus checks and unemployment benefits, people will still be able to spend. So in categories like food and other essentials, I think there will be price inflation. And even the CPI, which historically under-represents actual price increases, shows food prices increasing by 4.8%.
While the COVID-19 recession is undoubtably be deflationary, the government’s response will surely be to print and inflate. Gold should continue to do well in this environment.
With several states considering reopening in May, at least in some capacity this trend will certainly be disrupted and the rate of active case growth will probably rise again.
Not surprisingly, the major US indices bottomed a few days later on 23 March.
Year to Date, the S&P 500 (black) is down 12.6%, Nasdaq (blue) is down 5.52%, Dow Jones (purple) is down 16.96% and gold (yellow) is up 11.16%
A popular theory is that this rapid selloff and equally rapid rebound is a V-shaped recovery.
As of writing the Vanguard S&P 500 VOO ETF fell over 35% from 311.59 down to 200.55 before rallying back 30% up to 261.2
While this certainly is the case right now, I believe that the fallout from COVID-19 will continue for many months and US stocks will make new lows. We’ll see which organizations and governments have been swimming naked as the tide is going out and the results will probably be ugly.
Since early 2009 US markets have been in a bull market. In less than a month that 11 year bull market has ended and we are now officially in a bear market. The big three US indices are all down more than 20%.
NASDAQ in blue, S&P 500 in Grey, Dow Jones Industrial Average in Purple and Gold in Yellow
Interesting that the trigger to the selloff was something no one was expecting. But perhaps the fact that no one saw this specific catalyst coming shouldn’t come as a surprise.
As I mentioned before, making financial decisions out of fear or panic will rarely result in the best outcome. Cool heads will prevail.
At this point in time I have more questions than answers, but in the midst of this bear market there is great opportunity.
Is Now the Time to be “Greedy”?
“Be fearful when others are greedy and greedy when others are fearful.” – Warren Buffett
It’s hard for me to respect Warren Buffett when the man does everything in his power to avoid paying taxes while at the same time publicly saying he should pay higher taxes. It is hypocritical.
Despite my misgivings about Mr. Buffett I can’t argue with the long term performance of Berkshire Hathaway.
It’s important to ignore what Warren Buffet says on his virtue signaling tours and look at what he is actually doing with his money.
Others are fearful right now so it could be a good time to be “greedy”. Of course buying things on sale isn’t actual greed but I digress.
Who Knows when the markets will bottom out?
I’ve been underweight US stocks and will be using this bear market as an opportunity to dollar cost average into US index funds and ETFs. I do not believe it is possible to time the bottom so I’m not going to try. What I am trying to do is to buy into the market at an interval of good prices.
Compared to the highs stocks are on sale at a 25% discount. They might go on sale for 40% off or even 50% off but in either case it is a significant discount from the mid-February highs.
How is Gold Working Out?
Gold has been a decent hedge so far. However during a panic the yellow metal will probably fall as people sell everything. And indeed gold is down from the $1,700 high made earlier this month.
For the first five years after the last financial shock (2008-2009) US stocks were the place to be and gold, which had a tremendous run-up, went into a bear market. Of course past performance is no guarantee of future performance, but it can provide a guide for how markets could possibly perform.
Gold in Yellow and S&P 500 in Blue
Over the past five years, as a result the current crash, gold has outperformed the S&P 500. Gold is up 32.71% compared to the S&P 500 being up 24.06%.
Gold in Yellow and S&P 500 in Blue
However, even after this large drop. Since the 2008-2009 financial crisis, stocks have been the place to be. The S&P 500 is still up 248% since February of 2009, while gold is up relatively modest 68.9%.
Gold in Yellow and S&P 500 in Blue
And despite this large drop, for the past 10 years, stocks have done very well.
NASDAQ in blue, S&P 500 in Grey, Dow Jones Industrial Average in Purple and Gold in Yellow
The Fed Tries to “Help”
Not one to stand by and allow the free market to operate–the US Federal Reserve announced more quantitative easing (QE4) on Thursday. Of course if you count the not-QE QE, this would be QE5, for those keeping score at home. It is also anticipated that rates will be cut again.
Rates were over 6.5% prior to the 2000 dot com crash. They were hiked back up to about 5.25% prior to the 2008-2009 financial crisis. But after the 11 year bull run rates only made it as high as 2.4%.
In short the rates have never been this low going into what could be a recession.
The Fed is entering this bear market (and potential recession) with interest rates already so low they have little ammunition to “help”.
The Fed is already doing more Quantitative Easing.It seems inevitable that rates will go negative.
Gold reclaimed the $1,500 level just a couple months ago over Christmas. Now the yellow metal has topped $1,600 and is trading north of $1,610. Gold also reached this level earlier this year on January 8. However, long term Gold has not been at this level since March of 2013.
With a US stock market that is 11 years in a bull market, profligate government spending, artificially low interest rates and geopolitical uncertainty in Iran and China, gold will likely remain a safe haven place to park capital.
However, for those over allocated gold, this is also an opportunity for some profit taking.
In time for Christmas gold has moved up above $1,500 and as of writing is trading north of $1,510.
I had previously written about how gold has been on the receiving end of a severe price drubbing. Not so now.
The fundamentals of gold are very strong. Gold was is a downward channel and this strong move upward could be a continuation of the gold bull market that began at the end of 2015/early 2016.
The $1,450 level looks like strong support. Gold would need to break through the $1,520 and $1,545 levels to retest the six year high set 4 September of $1,566.
This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish.AcceptRejectRead More
Cookie Policy
Privacy Overview
This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.
