I worry I will goocher gold’s recent amazing resilience with this post, but I am shocked at how well gold has traded in the midst of this face ripping rally in equities. I have been bracing for a big gold sell off, but so far it has not come.
Over the past couple of weeks as the stock market has stabilized and shot higher, I have noticed many traders piling on the short side of gold, anticipating a return of the old paradigm of rising stocks and falling gold (and other commodities).
It is easy to see why these traders are leaning short gold. The long term trend is definitely down, while stocks are the exact opposite. It is not difficult to draw the conclusion the resumption of the stock uptrend will usher back the gold sell off.
Even though stocks are rocketing higher, gold is not reversing course and plunging. In fact, during the stock market rally of the past couple of weeks, gold has grinded higher, making a series of higher lows.
It’s tough to argue this is a chart that wants to go down. Obviously someone is buying gold, but who?
Bonehead move of the week
This morning our illustrious Government of Canada announced the Minister of Finance pitched the last of our country’s pathetic gold reserves.
This brings Canada’s total gold holdings to zip. Nada. Z-E-R-O…
Some of you are no doubt persuaded by Warren Buffett’s argument about gold being a useless metal that we spend billions digging out of the ground, only to spend even more money storing back under ground. To you, Canada’s move will seem brilliant. Why waste even one extra dollar holding some archaic form of money?
Most investors probably think this recent gold divestiture by a Central Bank is a common phenomenon. After all, Central Banks have long given up using gold as an asset against issued currency. And from that perspective, you have to give the Government of Canada credit. The decision to place 100% faith in the fiat currency system is at least intellectually honest (as opposed to the usual crap that spews out of Central Bankers mouths). The problem is that although Central Bankers all proclaim faith in the financial system, their actions don’t match their rhetoric.
Just like all pigs are equal but some are more equal than others, all Central Bankers have faith in each other, some just have more faith.
Ever since the 2008/9 credit crisis, gold held by Central Banks and other government institutions has only been going one way - up!
Gold bulls - Don’t be afraid of a rising stock market
I am running late this morning, so I am going to make today’s post short and sweet. The old trend of higher stock market equals lower gold price has been broken. Don’t short gold because stocks are ripping higher.
Gold is a small market extremely sensitive to Central Bank behemoths. They can buy both gold and stocks as they monetize their balance sheets.
Central Bankers are becoming less trusting, not more. They will increasingly turn to an asset that is no one’s liability. Although Canada is a trusting nation, we are also a bit naive. Don’t follow Canada’s footstep by trusting these bat shit crazy Central Bankers. Remember, watch what they do, not what they say. And they are buying gold…
Thanks for reading,