Will Gold Bugs Finally Have Their Day?

February 6, 2019

I'm in Vancouver for a few days. While I'm here, I need to meet with Gold Bugs and ski Whistler. That's what you do around here right? I'm good with both.

It's hard to have a serious conversation with the true yellow metal cult followers. These clowns are bullish at all times and have been expecting Gold to make a huge move every day since their last big move that ended in 2011. "This is it", I've been hearing for years. But Nope. Not only have they not made any money, but the opportunity cost (what else could they have done with that cash) is through the roof. It's been painful to watch them.

For our purposes, open minded investors, in other words, we don't care if Gold doubles or goes to zero. We could not care less. Our jobs aren't dependent on them. Our "investment strategy" is not tied to rising prices for precious metals and since we don't have "a narrative", we don't need to make things up to justify our existence.

We want to be buying things that are going up and selling things going down. It may sound oversimplified, but that's just the truth. Securities trend. There is a much higher likelihood for a trend to continue than for it to reverse course and turn around. "An object in motion stays in motion", I believe is how Mr. Newton put it.

One of the things we do is look for clues, or evidence of changes in these trends. For many years now it's been Stocks > Gold. This has been one of the sweetest trends to both watch and participate in for a long time. Watching the stubborn get killed is a great lesson in humility. Don't let it happen to you!

If we're going to make a bullish case for precious metals (and we have been since October), I think it needs to start with this chart right here: Gold vs the S&P500. This chart answers the question of, "Gold or Stocks?":

I see a bullish momentum divergence at the recent lows and failed breakdown below the lower end of this falling wedge. The way I learned it was, "From failed moves come fast moves", and I think this is precisely what is taking place.

Another relative chart that I think is worth mentioning is the Monthly Gold vs US Treasury Bonds. As a supplement to the chart above, this one answers the, "Gold or Bonds" question. It looks to me like a nice multi-year basing process looking to resolve higher:

There are a lot of intermarket relationships I'm seeing out there suggesting we want to continue to err on the long side of precious metals. From the currency angle, a weakening US Dollar tends to coincide with rising Gold prices. We discuss this in a recent podcast with John Roque. Here is the chart he sent in showing this relationship: