An article by Mark Hulbert jogged the title’s question into my mind:
This Bear Market in Gold Still Has too Many Bulls
With respect to the reasons for owning gold, I never flinch when taking a long-term value perspective. In the monetary and financial world gold is insurance and insurance is something you buy, but hope to never need. The value of insurance is in one of its definitions: “a thing providing protection against a possible eventuality”.
It is good news that this ‘thing’ has not been needed as modern policy making has worked to mostly desired effects, as asset markets have been pumped by inflationary policies that have not (yet) had a commensurate level of risk discovery.
It is bad news that this ‘thing’ will be needed in the future because risk – especially when mainlined into the system through brute force policy – is always discovered, eventually.
It will be very good news for the relative few who have kept perspective and balanced the bear market risks in gold and the gold stock sector with the coming potentials. As with any bear market, there have been perma bulls calling bullish all the way down. But at some point, the new breed – the perma bears – are going to be exterminated.
The message of the big picture work done in NFTRH (as summarized in a recent eLetter/NFTRH.com post) is that the time is coming, but for short-term speculators, risks remain. So as I have written for what seems like forever, individuals absolutely must understand who they are and what their goals are or risk being lost along the way to the bear market’s conclusion and the new bull market’s beginning.
When I read analysis talking about how strong US employment data are going to send large institutions running for the inflation protection of gold I tend to agree with Hulbert. When I read things like Modi + Indian Wedding Season = Gold Bull I tend to agree with Hulbert. When I read about China’s voracious demand for gold and that you’d better buy with the smart money, I tend to agree with Hulbert.
I won’t go into all the reasons why ‘gold as an inflation hedge’ is a faulty outlook. This post is not about that oft-belabored point. I will simply ask you to beware of the anti-USD obsession as applies to gold and the inflation hysterics that usually go with it. Best case, gold would be just another item amongst commodities if the play is anti-USD.
We await a counter cyclical environment that may well include a firm US dollar. This would not make sense to the still intact legions of pre-programmed devotees in the gold “community”. And right there is another reason why on the short-term, Hulbert may be right. Opportunity is coming, but it is not going to wear bells on its heels, a big smile on its face and dance around in front of you until it is understood.