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Trading Lessons

The Truth About Gold That Neither Bugs Nor Bulls Want to Admit

Commodities / Gold and Silver 2018 May 13, 2018 - 04:10 PM GMT

By: Graham_Summers

Commodities

Let’s talk about Gold as an investment.

Gold is one of the most divisive asset classes on the planet. Stock-centric investors such as Warren Buffett think it’s a worthless “pet rock” that fails to appreciate in value. Gold bugs, on the other hand, revere the precious metal with an almost religious-like ferocity.

Both of these views are misguided particularly when you apply them to a framework that involves TIME.


The fact that Buffett accrued his great fortune during a brief period in which the financial system was based solely on fiat currency has lead him to view Gold with contempt. However, the fact remains that Gold has been a storehouse of value for 5,000 years.

Based on this alone, Buffett’s ideology is myopic. To sneer at Gold is to sneer at the history of money.

However, Gold Bugs are no better in that they focus too much on this “5,000 year metric.” The fact remains that since 1971, Gold has ceased to operate as a storehouse of value in the same way as it did during the other 4,962 years.

I’m NOT saying Gold is no longer a storehouse of value… I’m saying that Gold no longer stores value as it did PRIOR to 1971.

The reason for this concerns the fact that the world is now in a completely fiat-based financial system in which Central Banks can print tens of billions of their currencies at a whim. This opens the door to abject manipulation of Gold prices.

Historically, Central Banks printed actual physical currency. That is no longer the case. Today, 99% of wealth is digital. When the Fed or some other Central Bank prints money, they are not actually firing up a printing press; instead, the entire process is digital in nature and simply involves moving electronic currency from one bank account to another.

Because of this, it is much easier for Central Banks to manipulate asset classes by printing money and then using it to buy or sell futures in those assets. We know this is the case because the futures exchanges openly admit they have programs in place through which Central Banks do this.

An alternative scheme involves Central Banks providing short-term loans to large investment banks, which then manipulate asset classes for them. Thanks to several recent lawsuits, we know for a fact this regularly occurs in the Gold market.

For this reason, Gold no longer acts as a storehouse of value in the same way as it did during the previous 5,000 years. I’m not saying Gold doesn’t maintain purchasing power better than other investment classes, I’m merely pointing out that it no longer maintains purchasing power in the same way as it has historically. And for this reason, Gold bugs, particularly those that hold the precious metal up as a kind of religion, end up perennially frustrated (its been 40+ years since Gold acted as it is supposed to… that’s the length of an entire investment career for some).

So… if Gold is NOT a “pet-rock” as the Buffett crowd would claim… and it’s NOT the storehouse of value that it one was…. What is it?

Gold is a risk asset that trades based on the true cost of moneyas illustrated by “real rates” (Treasury yields MINUS inflation protected Treasury yields). Remember, in our current financial system, the yields on US Treasuries represent the “risk free rate of return.” When you account for inflation by subtracting the yields on inflation-protected Treasury bonds from normal Treasury yields you arrive at the TRUE cost of money.

THIS is what Gold tracks as the below chart reveals.

Having said all of this, the signs are now pointing towards Gold and other inflation hedges rising rapidly as inflation takes hold of the financial system.

Real rates have staged a CONFIRMED breakout from a massive five year triangle pattern.

This is EXTREMELY bullish. And it tells us that HIGHER real rates are coming in the future.

Put simply, BIG inflation is on its way. And smart investors are already taking steps to profit from it..

On that note, we just published a Special Investment Report concerning a FIVE secret investments you can use to make inflation pay youas it rips through the financial system in the months ahead

The report is titled Survive the Inflationary Storm

We are making just 100 copies available to the public.

To pick up yours, swing by:

https://www.phoenixcapitalmarketing.com/inflationstorm.html

Graham Summers

Phoenix Capital Research

http://www.phoenixcapitalmarketing.com

Graham also writes Private Wealth Advisory, a monthly investment advisory focusing on the most lucrative investment opportunities the financial markets have to offer. Graham understands the big picture from both a macro-economic and capital in/outflow perspective. He translates his understanding into finding trends and unde74rvalued investment opportunities months before the markets catch on: the Private Wealth Advisory portfolio has outperformed the S&P 500 three of the last five years, including a 7% return in 2008 vs. a 37% loss for the S&P 500.

Previously, Graham worked as a Senior Financial Analyst covering global markets for several investment firms in the Mid-Atlantic region. He’s lived and performed research in Europe, Asia, the Middle East, and the United States.

© 2018 Copyright Graham Summers - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Graham Summers Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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