“History shows again and again how nature points out the folly of man” –Blue Oyster Cult, Godzilla
I would have written off the gold sector long ago in its ongoing bear market had I thought for one moment that gold’s utility as insurance against the acts of monetary madmen/women in high places had been compromised in any way. On the contrary, the monetary metal is simply having its price marked down in a bear market while its value, especially given its current price and all that has gone on in the financial system over the last 3 years remains just fine.
Indeed gold, an element dug out of the ground for centuries, once as money and now as a marker to sound money systems will one day be shown to be a calm oasis from the fallout to global monetary shenanigans currently ongoing. At least it would be an oasis to those who have valued it as such. It is going to feel like a giant dinosaur (minus the kitsch value) ripping through a city built on paper to the multitudes who have taken the bait on the current too big to fail global inflationary operations. They will fail. Timing is the only question.
Despite what many are compelled to believe by aggressive (read: maniacal) global policy making that has turned down to up, right to left and symmetrical to asymmetrical, gold is and has been a lump of monetary value just sitting there, waiting out a phase where monetary policy is working seemingly as intended, to impoverish the working and saving classes and further enrich the asset ownership and investment classes.
I have gone hard on the gold “community” for a few years now because I watched in real time as the dark clouds gathered against the honest money relic and those bullish upon it. The narrative never changed for many of the most high profile gold “community” leaders and spokespeople, and in the modern financial markets that simply will not do. In the past, even during the previous bull market, I have likened being a gold investor to being at war. You are at monetary war in support of ideals and a sense of what is right vs. entities that manipulate and control markets toward desired outcomes.
And do you know what? They have won every damned battle since 2011.
The most brilliant move made by the US Fed in targeting gold (either directly or as part of the fallout) was Operation Twist, which came on the heels of gold’s flirtation with the $2000/ounce level. Op/Twist very simply was designed to “sanitize” (the Fed’s word, not mine) inflation signals by selling short-term T bonds while buying long-term T bonds. It was brilliant, evil and awe-inspiring all at once; genius. Simply manage paper and digital entries in the bond market so that a long relied upon macro signal (the relationship between short and long-term Treasury yields) will at once show a financial system under diminishing stress (yield curve decline) and a lack of inflationary expectations.
So the US Federal Reserve had the balls to literally paint the macro by turning the out of control 10yr-2yr yield curve (an important gold fundamental) down, sanitize inflation (a less important but sometimes very relevant gold fundamental) and best of all, keep on inflating… and inflating… and inflating… with ongoing ZIRP and QE3 as the global macro pull of deflation put Goldilocks on US markets 24/7 and 365.
Gold bugs would have none of this and why should they? The average gold bug (the real people, not the pitch men and promoters) is driven by this thing we call honesty and a sense of morality. To anyone with half a brain and not incentivized to look the other way (like probably 90% of the financial services industry), these macro parlor tricks are ephemeral and will not only not succeed, but one day be looked back upon as a scourge upon future generations.
The problem is that gold is so simple (as a monetary anchor) that eggheads feel a need to make it complex (the old ‘baffle ’em with b/s’) and those with agendas feel a need to pile on, for example, schooling us over and over again in the media about how gold is a poor “inflation hedge”, when that is not its only utility; not by a long shot.
The post-2011 period has been a veritable Wonderland of possibilities for the printers of paper, enterers of keyboard digits and those who follow their breadcrumbs.
Further, the leadership of the gold “community” have been shown to be little more than dogma spewing robots firmly set in their ideology when maybe what was needed was a more even handed approach that could have helped legions of gold devotees avoid some very unpleasant interim situations before Goldzilla finally rises up and wrecks the cities around the globe made of paper and digits.
The gold sector is rallying as we expected it would from the 2008 lows and a capitulation of at least moderate degree but has not proven much, technically. Similarly, the fundamentals are not yet fully baked for the sector (ref. yield curves, gold vs. stock markets, gold vs. certain commodities, intact public confidence in policy making, etc.). These things will change either sooner or later, but for years now imposing our will upon the market has not worked. Sit back, relax and let Goldzilla do his thing.
I write the above in the style I used to write as a ‘for free’ public writer (as opposed to the more technical stuff I need to see to now with NFTRH) to hopefully add a level of perspective to the conversation going forward. The macro is going to change. It always does.