Quick sentiment check-up on gold. Yep. No pulse. Gold must be dead.
Gold is currently on its fifth consecutive week of declining, and is currently struggling to keep above $1,700/oz, which is over 15% lower from its recent highs and nearly 20% lower from its all-time highs, indicating the lowest levels in the last 1.5 year. The last time gold was this low, it had come down from its 2020 summer high. Yikes. Have a look:
Is Inflation Good or Bad for Dold?
It does sound bizzare but even in the face of the highest inflation figures in decades (June CPI was 9.1%), gold doesn’t seem to be ready to move higher.
Some have blamed the dollar and its recent strenght for gold’s misery, but is that it?
Naturally, the USD and gold have an inverse correlation. This means that when the dollar goes up, gold goes down.
That being said, we will likely need to see the greenback fall from its elevated levels for gold to make a sustained move up.
Could this happen after a rate hike? Technically, it could. If the FED decides to raise interest rates by 100 basis points, instead of the promised 75, then that could push recession fears even higher and generate higher demand for safe haven assets like gold.
What else could result in gold going higher is if other central banks decide to hike interest rates as aggressively as the FED. That could make the DXY go lower and increase interest in gold.
There are many possibilities, but in the last few months gold has gone down because inflation was too high, but also because inflation wasn’t high enough. Market participants, me included, seem to be very confused.
Is Gold a Good Investment?
No. Gold is not a good investment.
Buying gold and thinking that it’s an investment is a mistake that gold bugs and experts keep telling me not to make.
However, there is money to be made in gold stocks.
Gold stocks typically go from oversold to overbought. People either hate them or they love them.
Rick Rule tells me to buy gold stocks when nobody else does. Bob Moriarty from 321 Gold tells me that when there are no sellers, the only thing that’s left are buyers.
“In the natural resource space, you’re either a contrarian or you will be a victim”.
- Rick Rule
The chart below shows the Gold Miners Bullish Percent Index (BPGDM). That chart tells me that, currently, there is almost no bullish sentiment in gold stocks.
If I had no position in gold stocks, I would be starting one here.
Although experts like Lobo Tiggre have told me that they’re currently gathering as much cash as they can but are not buying, I still can’t not acknowledge how low the sentiment in gold stocks is.
I do understand that it’s not time to go all in on anything because of how uncertain the macro picture is going forward, and because the FED might choose to hike interest rates by 100 basis points, but the risk of not having a position in gold stocks seems rather high given the current sentiment.
Don Durrett has been writing blog articles for Resource Talks on gold stocks that he likes for about 10 weeks now.
View his gold picks here.
Antonio Atanasov is not an investment advisor. Antonio Atanasov owns shares of companies mentioned in this publication. Some of the companies mentioned in this video and/or publication are paying customers of Resource Talks. The information provided in this publication – and all other publications by Resource Talks – is impersonal in nature and meant for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple licensed, experienced, and qualified investment advisors. Get numerous opinions before taking your own decision in the end. The minimum risk on any investment mentioned in this publication is 100% loss of capital.
Shortly: you will lose all of your money and possibly most of your brain cells if you listen to talking heads on the internet. Especially if they have orange hair and no experience (me).
Readers are cautioned that this presentation likely contains forward-looking statements about expected future events and the financial and operating performance of any companies potentially discussed herein. Reality often varies from people’s expectations. Managements like over-promising and under-delivering. If a manager was speaking in here, beware. Readers are encouraged to read the Cautionary Note on Forward-Looking Information and to consult the Company’s Annual Information Form, which is available on www.sedar.com. Reading the full disclaimer on the disclaimer page on this website is mandatory.