Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Evergrande China's Lehman's Moment, Tip of the Ice Berg in Financial Crisis 2.0 - 21st Sep 21
The Fed Is Playing The Biggest Game Of Chicken In History - 21st Sep 21
Focus on Stock Market Short-term Cycle - 21st Sep 21
Lands End Cornwall In VR360 - UK Holidays, Staycations - 21st Sep 21
Stock Market FOMO Hits September CRASH Brick Wall - Dow Trend Forecast 2021 Review - 20th Sep 21
Two Huge, Overlooked Drains on Global Silver Supplies - 20th Sep 21
Gold gets hammered but Copper fails to seize the moment - 20th Sep 21
New arms race and nuclear risks could spell End to the Asian Century - 20th Sep 21
Stock Market FOMO Hits September Brick Wall - Dow Trend Forecast 2021 Review - 19th Sep 21
Dow Forecasting Neural Nets, Crossing the Rubicon With Three High Risk Chinese Tech Stocks - 18th Sep 21
If Post-1971 Monetary System Is Bad, Why Isn’t Gold Higher? - 18th Sep 21
Stock Market Shaking Off the Taper Blues - 18th Sep 21
So... This Happened! One Crypto Goes From "Little-Known" -to- "Top 10" in 6 Weeks - 18th Sep 21
Why a Financial Markets "Panic" May Be Just Around the Corner - 18th Sep 21
An Update on the End of College… and a New Way to Profit - 16th Sep 21
What Kind of Support and Services Can Your Accountant Provide? Your Main Questions Answered - 16th Sep 21
Consistent performance makes waste a good place to buy stocks - 16th Sep 21
Dow Stock Market Trend Forecasting Neural Nets Pattern Recognition - 15th Sep 21
Eurozone Impact on Gold: The ECB and the Phantom Taper - 15th Sep 21
Fed To Taper into Weakening Economy - 15th Sep 21
Gold Miners: Last of the Summer Wine - 15th Sep 21
How does product development affect a company’s market value? - 15th Sep 21
Types of Investment Property to Become Familiar with - 15th Sep 21
Is This the "Kiss of Death" for the Stocks Bull Market? - 14th Sep 21
Where Are the Stock Market Fireworks? - 14th Sep 21
Play-To-Earn Cryptocurrency Games Gain More and Is Set to Expand - 14th Sep 21
The CashFX TAP Platform - Catering to Bull Investors and Bear Investors Alike - 14th Sep 21
Why every serious investor should be focused on blockchain technology - 13th Sep 21
SPX Base Projection Reached – End of the Line? - 13th Sep 21
There are diverse ways to finance the purchase of a car - 13th Sep 21
6 Tips For Wise Investment - 13th Sep 21 - Mark_Adan
Gold Price Back Below $1,800! - 10th Sep 21
The Inflation/Deflation debate wears on… - 10th Sep 21
Silver Price seen tracking Copper prices higher - 10th Sep 21
The Pitfalls of Not Using a Solicitor for Your Divorce - 10th Sep 21
Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
This Boom-Bust Cycle in US Home Ownership Should Give Home Shoppers Pause - 9th Sep 21
Stock Market September Smackdown Coming Next? - 9th Sep 21 - Monica_Kingsley
Crazy Crypto Markets How to Buy Bitcoin, Litecoin for Half Market Price and Sell for TRIPLE! - 8th Sep 21
Sun Sea and Sand UK Holidays 2021, Scarborough in VR 180 3D! - 8th Sep 21
Bitcoin BTC Price Detailed Trend Forecast Into End 2021 - 8th Sep 21
Hyper Growth Stocks - This billionaire is now using one of our top strategies - 8th Sep 21
6 common trading mistakes to avoid at all costs - 8th Sep 21
US Dollar Upswing, S&P 500 and Nasdaq Outlook - 7th Sep 21
Dovish Assassins of the USD Index - 7th Sep 21
Weak August Payrolls: Why We Should Care - 7th Sep 21
A Mixed Stock Market - Still - 6th Sep 21
Energy Metals Build Momentum; Silver & Platinum May Follow - 6th Sep 21
What‘s Not to Love About Crypto Market Fireworks - 6th Sep 21
Surging US Home Prices and Gold – What’s the Link? - 6th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Financial Markets and Economic Uncertainty Will Support Gold

Commodities / Gold and Silver 2010 Jun 01, 2010 - 07:10 AM GMT

By: Neil_Charnock

Commodities

Best Financial Markets Analysis ArticleNews is out that European banks will have to write off 20% of their loan books.  The full news on Spain is not out yet, their banks cannot get reasonably priced funding.  How can we get growth under these conditions?  Despite all this the appetite for risk is apparently returning at least for now.  This increasing appetite could last for anything between 1 day and a few months. 


Local news Down Under, news flash the Government has invoked a state of emergency over their super tax’s opposition by the mining industry.   They have decided to advertise to inform us how “right” they are.  It just gets better and better doesn’t it?  Governments are all the same, in the absence of total understanding, facing the self induced need to do something; they interfere with market forces making things worse in the process.

The AUD is falling again tonight as predicted and gold is going up as predicted.  This has taken the AUD gold price to $1,471.   Our XGD is back up over 6,000 and holding well on the general sell off as we have seen a drop of 12% on the XAO from the high on the 14th April to the close today.  In comparison we have seen a drop of only 3.5% for the XGD high of 6278 on April 12th compared to the close of 6056 today.

The XGD has been distorted by the LGL revaluation due to the NCM take over so I have added the emerging producers 5 year chart to show the real lag between smaller cap producers and the AUD gold price.  As you can see these stocks are falling slightly here in spite of the AUD price of gold.  Now we head into the final weeks of the Australian financial year and buying season.

On balance this presents opportunity.  These undervaluation distortions cannot remain for very long in such a gold friendly economic climate.  Some of our favourite larger producers showed appreciation to new all time highs over the past few weeks.  I have been saying for some time that these un-weighted charts are less distorted by the heavy weight gold stocks on the ASX and therefore more representative of the sector.

A little story about debt, gold and Bondi beach

I was discussing this current global situation with a colleague and we came up with a fun analogy the world’s current, very serious debt situation.  Hopefully you will find this entertaining and educational and maybe you might send it to somebody who needs to read it.  Seeing as debt and gold are so poorly understood in this day and age I feel it is important to cover this topic with some good old fashioned common sense.

Analogy: a swimmer is caught in a rip; a term describing a tidal phenomena where a strong current (that runs out to sea in a channel) drags you out to sea if you get caught in it.  The rip represents any debt trap in this case and they both work in a similar way pulling you into deeper trouble. 

For an individual this might apply to your credit cards getting further and further behind until you can’t pay off the balance.  This stress means you cannot continue to pay off the mortgage and still live your normal lifestyle.  The way out of the rip is to float for a while, let the current take you out to sea until the force diminishes.  Once clear you can swim sideways for a distance to clear the problem rip area and then let the waves carry you safely back to shore.

In this case the solution of going out with the rip initially is the equivalent of going quiet for a while.  You have to cut back your expenses and go without some of your normal pleasures or activities.  You may have to cut back on basics if this has progressed too far.  Some swimmers thrown in might be lucky enough to wear a golden life jacket and would be able to float out of harms way with greater safety.  Some might own shares in the life jacket and life buoy manufacturer so they can get out of harms way too.  You will do well to be in this group just in case.

This “go with the flow” and pay the debt down solution idea is too practical, unpopular and logical for sophisticated Governments; after all we vote for them and they are “responsible” for doing something.  Their solution is to throw more people into the rip so they can hang on to each other.  They must think that will fix the rip.  When this does not work they tell the swimmers to swim as hard as they can towards the shore, be patriotic, spend your way to wealth they told us. 

When this does not work they get really serious and get a machine in to increase the water flow into the rip.  Not being in the water themselves, as they sit in their ivory tower, they can’t understand what all the screaming is really all about.   Well they sure are doing ‘something’ which is their job after all.  Look at all the water we gave them they claim.  This pushes the price of water up but that is OK. 

Meanwhile there are a bunch of onlookers on the beach sitting in arm chairs made of gold and soaking up the sun while they watch on in concern.  Behind them there are apartments and penthouses overlooking the beach.  They were made of gold and silver too.

After a while new data is released and the government notices the news is still bad.  The rip is still there despite all their brilliant efforts.  They might not be elected at all, now they get nervous.  I am sure they are concerned for the swimmers and redouble their efforts.  But the news is not as bad as the analysts thought as some swimmers got smart and floated out to sea away from the other struggling swimmers.   Some gave up and drowned, may they RIP (rest in peace). 

There is still a lot of screaming and the drowning is increasing so they throw more and more swimmers into the rip.  They have to go to other beaches for more swimmers where there was no rip, contagion sets in.  Rips develop at all the beaches after a while.  My goodness the government needs more staff to cope with the crisis and because they manage so many people they deserve a pay rise.  Pure genius isn’t it.  Are you happy with the story so far?

The next step of the actual solution is swimming sideways across the beach for a while and this equates to paying that last credit card payment removing the imminent threat.  Now you can create a few savings as a financial buffer, this is equivalent to going sideways for a while as we are not ready for any spending yet.  This is not much fun you say, not fashionable maybe even boring.  I have tried it in years gone past and promise it must be a lot more comfortable than the rip and certainly better than drowning.

Meanwhile the government hates a lack of spending; we need exponential growth they cry.   Of course the government does not reach this “swim sideways” point; they are still in the rip trying to buy time with more water.  Next thing they regulate the beach because they should have controlled the rips, the tides, the waves, the sand and swimwear fashion.  

The swimmers have relatives who are on the beach and threatening to not vote for them unless they do something.  In response they are throwing more and more swimmers, swimming coaches, pedestrians and even the life guards into the rip.  The re-regulate the lifeguards, tax the rescue boats and threaten to sue them if they don’t stop the disaster.  They even turn the machine up harder and pump more water into the rip and out to sea.  (Is this the same as over regulation and chronic fiscal irresponsibility?)

Letting the waves carry you back to shore would be the point where you have your financial buffer back in the bank and start to pay a little extra off the mortgage, maybe fix up the car, just slowly.  You don’t want to upset the buffer you have created as it is your safety net.  You still remember the stress of the rip and that scared hungry feeling.  You didn’t want to drown, end up bankrupt with your possessions repossessed.  For a Government this is where your economy would normally return to modest growth.

Finally you reach the shore and take a breather in that golden sun and warm up.  This should be normal operation and where you want to be most of the time.  Meanwhile the Government has drowned itself, the banks and the States, suffered riots in the streets and defaulted on their debt necessitating a restructure of the entire financial system.  It is not just their fault as most of the population votes for those that promise them the most.  This is a symptom of the debt based monetary system and because it has been with us so ling it is considered normal.

The citizens that woke up early floated out to sea in that rip on their golden life jackets. They had sorted their own trouble by taking responsibility, before they became too exhausted in that debt rip, so they survived to land back on the beach.  Some of the citizens stayed on the beach and some just looked on in horror from their golden penthouses.

Conclusion

These are uncertain times because we are in uncharted waters.  We are gradually transitioning into a different world as power shifts from over indebted developed nations to the emerging economies.  Head winds, cross currents, rogue waves, fat tail events are all buzz words you should all learn now because you will hear a lot more about them over coming years.   Gold and gold stocks have a bright future because in the most simplistic terms, things are uncertain and debt has gotten out of hand.  Throwing more money at a debt implosion is just like pumping more water into the rip.

Sovereign debt defaults have come and gone over hundreds of years and they are very traumatic when they occur.  However we have never seen such a large number of countries simultaneously in difficulty with debt, and or struggling with structural change before.  Europe and the US, the UK and Japan are clearly in decline facing a reduced growth outlook which should no longer be supercharged by hyper-debt.

An added complication which exacerbates uncertainty is the Euro experiment.  The Euro only began on the 1st of January 1999 and has been a success during its early years.  As if the world needed another major monetary experiment.   With the USD acting as the world’s fiat reserve currency, and hitting all time highs, I guess it seemed like a good idea at the time.  Then the new millennia began and the USD began to tank coinciding with the end of a twenty year bull market. 

Countries in the Euro Zone that need to restructure are highly restricted.  They cannot lower their currencies to enable export growth.  They are restrained by unmanageable levels of debt in some cases and need to completely restructure, declare bankruptcy, default and then get on with rebuilding.  Such machinations will eventually create a loss of confidence in currencies and drive gold higher, silver will rise with it.  The stocks will follow at times and lead the way at other times.  At present they are lagging the physical metals due to risk aversion and de-leveraging.  Time to get loaded up in quality, low geared, high growth gold stocks is upon us now.  Buy on dips and any remaining weakness.  The same goes for the precious metals – a life jacket for the times.

In 2001 gold also awakened from a twenty year slumber which had ended with a hedging induced artificial low into the USD$250 area.  Without that hedging experiment gold may not have fallen below the USD$400 area but this is a subject for another essay at some point.   This now distorts the apparent magnitude of the rise in the gold price.  A three fold rise in gold from $400 to $1200 does not seem as dramatic as a 4.8 fold increase.  Gold and silver are not expensive at these levels so don’t be fooled.

You need to own precious metals and gold stocks now.  You may not find cheaper low cost, unhedged and debt free producers than here Down Under.   These metals and the stocks have a high probability of going into a major price spike at some point.  There are still several strong bull market waves in front of us for the precious metal complex because this debt problem will unfold slowly.  This is GFC Stage 2 so get used to it, things are not “better now” and the right steps to solve the problem are yet to be seen.  These steps are unpalatable under our current electoral system and I really do feel for the politicians who are caught between a rock and a very hard place.  Disaster presents opportunity so take advantage while you can.

Good trading / investing.
Regards,

Neil Charnock

www.goldoz.com.au

GoldOz is currently developing a Member area and has added further resources for free access. We have stepped up our research and stand by to assist investors from all walks of life. We sell an updating PDF service on ASX gold stocks from only $AUD35 for 3 months – the feedback is grateful and enthusiastic because we are highlighting companies that have growth potential and offering professional coverage of the sector. GoldOz web site is a growing dynamic resource for investors interested in PGE, silver and gold companies listed in Australia , brokers, bullion dealers and other services.

Neil Charnock is not a registered investment advisor. He is a private investor who, in addition to his essay publication offerings, has now assembled a highly experienced panel to assist in the presentation of various research information services.  The opinions and statements made in the above publication are the result of extensive research and are believed to be accurate and from reliable sources. The contents are his current opinion only, further more conditions may cause these opinions to change without notice. The insights herein published are made solely for international and educational purposes. The contents in this publication are not to be construed as solicitation or recommendation to be used for formulation of investment decisions in any type of market whatsoever. WARNING share market investment or speculation is a high risk activity. Investors enter such activity at their own risk and must conduct their own due diligence to research and verify all aspects of any investment decision, if necessary seeking competent professional assistance.

Neil Charnock Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in