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Don’t Skate to Where Gold Was — Skate to Where It’s Going to Be



December 14, 2016

Around the 2015 holiday season, investors were quickly taking notice of the absurdity of deeper cuts into negative rates by a number of prominent central banks. Savers (who were finding themselves in a world under siege) brought about a financial populace pushback. At the time, I thought that there simply wouldn’t be enough gold to go around if banks delved deeper into the negative rate experiment and investors’ appetite for gold increased exponentially. We witnessed incredible strength in the yellow metal in those early months of 2016.

Following the impressive run, gold reached long-term resistance by early summer, with a value of around $1,380. This coincided with an about-face from the European Central Bank (ECB), when it decided to pour cold water on the idea that it would delve deeper into negative rate territory. Suddenly, gold had less to celebrate. In addition, a Trump win was supposed to be bullish for gold, but as I’ve said before, ‘event risk’ rallies in gold are never very convincing. So what more does gold need? Well, it needs a lasting trend of money being disrespected. Either money gets taxed for merely existing, or money is diluted by pricing pressures.

The negative rate crowd is losing patience, but that sets us up for inflation taking the baton for gold. Already percolating inflation numbers continue to bump-up as economies in the U.S. and Europe show signs of improvement. Furthermore, Trump’s pro-growth fiscal policies could reinvigorate pricing further. On the other hand, it may be yet another false start and negative rates could return to the menu. With gold and gold miners having sold off nicely, I see good value at these levels. For example, the VanEck Vectors Gold Miners ETF (“GDX”) is sitting just below the 100-week moving average and gold itself is sitting right at the breakout area on the monthly chart. Some folks are getting very bearish on the sector, and that can only help bulls over time.


One-month chart of gold futures at December 15, 2016. Source: Thomson Reuters.

The views/opinions expressed herein may not necessarily be the views of AlphaPro Management Inc. All comments, opinions and views expressed are of a general nature and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors.

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