I’m Thinking … Gold

Raise your hand if you know of Jim Grant from Grant’s Interest Rate Observer fame?

OK, put your hand down. (I can’t see it anyway.)

Here is Grant’s latest quip on gold:

I’m very bullish on gold and I’m very bullish on gold mining shares. That’s because I think that the world will lose faith in the Ph.D. standard in monetary management. Gold is by no means the best investment. Gold is money and money is sterile, as Aristotle would remind us. It does not pay dividends or earn income. So keep in mind that gold is not a conventional investment. That’s why I don’t want to suggest that it is the one and only thing that people should have their money in. But to me, gold is a very timely way to invest in monetary disorder.

If you wanted my own current thoughts on gold, rendered down to one paragraph, I would say "see above."

If you want a bit more than one paragraph, here you go …

Peak Gold? Eh.

Renewed attention is being given to the supply of gold. The question is being asked: Has gold production peaked?

Actually, that question was asked back in January too. Perhaps such expectations are partly why gold has had quite a run year-to-date.

Begged for in that production question is an answer to this one: Is the price of gold going to surge higher?

My answer is mostly the same for both …

That is: Probably not.

For starters, new spending is down because producers entered firmly into cost-cutting mode with gold’s decline to $1,060 per ounce. In recent years, physical demand, particularly in Asia, has been softer than many gold speculators and commentators expected.

The anticipated normalization of Fed interest-rate policy probably hasn’t lent comfort to gold producers either.

But now we have gold running higher.

We also have a clearer read on how global monetary policy will not be normalized. Well, shoot — to be fair, it cannot be normalized.

Starts to sort-of kind-of maybe feel like producers might ought to be tempted to consider thinking about possibly capitalizing on higher prices by producing more gold to sell.

Attributing value, or greater value, to something has a funny way of increasing its supply.

Of course, increasing the supply of something has a funny way of reducing its demand … and thus its perceived value.

"So what gives, JR — Are you telling us the price of gold is going to rise or fall?"

Yes, I am.


Here’s my crystal ball …

Too cloudy?

Let me zoom out to a 2016 year-to-date weekly view for better clarity …

And again for the bigger picture …

For those playing along at home: If you have faith in my crystal ball, you are going to play it like this:

1. Buy gold at $1,300 for an 11% gain when you …

2. Sell gold at $1,450 for a 17% gain when you …

3. Buy gold at $1,200 for a 35% gain when you …

4. Sell gold at $1,625.

So, in July 2017, when you’ve made a cumulative 63% gain on the price of gold, I’ll get my crystal ball back out and tell you what to do next.

OK, to be a bit more serious …

I think we’re getting close to a new buying opportunity in gold. It could be at $1,300. Or it could be a bit lower if the recent decline needs to retrace a little deeper.

The whiff of U.S. dollar strength mingling out there in the market might mean gold does go a bit lower before making a move to $1,450.

But as Mr. Grant said, gold is currently "a very timely way to invest in monetary disorder."

Do right,

JR Crooks

“JR” specializes in trading commodities, currencies and options. He has spent nearly 10 years analyzing financial markets and writing about global economics. JR honed his trading techniques and global-macro worldview alongside his father, Jack Crooks, at Black Swan Capital. JR also …