Thinking About Gold
Used to be… that when I spoke about Gold, the folks that did listen… would look at me as if I were speaking in some ancient foreign language that nobody could understand. Lately… as I stand at my spot on trading floor of the New York Stock Exchange, willing to talk the financial markets or baseball with anyone who’s also willing…. more and more am I asked about Gold. Several times a week in fact.
In case you’ve missed it, when the World Gold Council released their Q1 data, total demand for Gold was up 21% y/y, largely due to demand for investment purposes. There were y/y declines in demand from Q1 2015, to Q1 2016 for jewelry, technology purposes, and even purchases made by central banks. Demand for investment purposes though, was up 122% y/y. That says something. It says that I am not alone in my thoughts. If the central banks (huge buyers in recent years) get started again. Woooo doggie!!
So, what is it about this barbarous relic that it refuses to just go away quietly? Is it money? Is it a commodity? Quite frankly, I think it is both. There certainly are characteristics that even the most impure of monetarists can not deny. Store of wealth, divisibility, and even at times of crisis… a medium of exchange. As you all know, if you do follow my notes, my current allocation toward Gold is 7.5%. We took it to that level from 5% in late December. We have flirted with taking it even higher in recent weeks, though we have dragged our feet. My thought is that if the physical (Which is the best way to own) were to make another run at $1300 an ounce that you may want to be at 10% for the long haul. Conversely, if the yellow metal were to run the other way, I think you lighten up at $1210 before throwing away your profits from Q1.
A very difficult asset to value in terms of fiat currency, one’s short term view on Gold really depends on global monetary policies. Should the FOMC tighten in the near future, while the rest of the planet is still easing, there will likely be a pullback in price, at least in dollar terms. However, should there be no attempt to tighten, or maybe even if there is a failed attempt…. this could cut the beast loose. We’ve all seen what this beast can do when it gets loose. Crazier things can, and have happened.
Long term ?? I bet you saw how the IMF is pressuring the Euro-Zone to allow Greece to put off paying any interest or even principal on their bail-out loans until 2040. Does anyone among us truly believe that the global debt super-cycle will never come to an endpoint ?? Not tomorrow. Not next year. There will be a do-over at some point. There is a likelihood that Gold will play a role in the next monetary system. I look at this as insurance… a way to preserve a slice of your portfolio, should the bad guys ever hit that re-set button.
Am I wrong ?? I sure hope so.