On Friday the gold market sparked to life on news that the Swiss Gold Referendum was gaining support.
On November 30th the Swiss will go to the polls to decide if the Swiss National Bank should hold 20% of its assets in gold. Polls have recently shown that the vote will be closer than the ruling elite would like. This caused gold to jump higher on Friday.
Although Friday was a rare day for the gold bulls to smile, in the grand scheme of things, the gold market is still way down.
We need to see gold reclaim the level from where it broke down before we can get too excited about the potential for a decent bottom. If we can claw ourselves back up to the point of the failed triple bottom, then maybe we can muster a real rally.
I have been way too bullish on gold, for way too long. As I have explained previously, I am by no means some dyed in the wool gold bug. I was bearish when all the hedge funds loved it in 2011, but I was too quick to assume that the move down in 2012 was a correction as opposed to the start of a new bear market. I have mistakenly believed that the Central Bank liquidity could not be contained solely to financial assets. Although I never doubted that stocks could reach the current lofty levels, I failed to anticipate that stocks could be this high while gold and other commodities were this low. I am still amazed at apparently how easy it is for Central Banks to levitate only financial assets, while other “hard assets” collapse.
Over the past couple of years, I have been long and wrong when it comes to gold, so I am cognizant that I might just continually be talking my book.
But on Friday, my new favourite way to play gold broke out to the upside. Gold priced in Yen pushed up through the recent six month consolidation range.
I have added to the trade. Although I am scared to death about the crowded nature of the Yen short trade, I get some comfort in the fact that gold is universally hated.
The Bank of Japan is stepping on the monetary expansion accelerator and gold in Tokyo is responding to the BoJ’s balance sheet enlargement.
If gold can climb above $1,200 in US dollar terms, then I might buy some outright. But in the mean time, I am sticking to the price basis that is already breaking out.
Although I might be wrong in my belief that Central Banks can magically levitate only financial assets with no adverse effects, I am not willing to bet on that outcome. Call me a skeptic, but I don’t think it is so easy for them to simply create wealth by expanding their balance sheet without this spilling into other prices.
I stick by my forecast that we have hit the point of maximum Central Bank faith. My guess is that there will be more and more skeptics like myself that are hedging their assets with some of the precious little yella fella. And the first nation to do so on a wide scale basis might be Switzerland. Rest assured if they go ahead, they won’t be the last.