Buy Gold, Bet on Tight Supply

Buy Gold, Bet on Tight Supply

$GLD, $SLV, $USD

Gold’s supply/demand prospects have caught the eye of 1 billionaire.

“For the 1st time in my life, I bought gold because it is a good hedge,” Sam Zell, the founder of Equity Group Investments, said in a Bloomberg TV interview. “Supply is shrinking and that is going to have a positive impact on the price.”

Spending on new mines began to dry up after prices of the metal tumbled from a record in Y 2011, clouding the outlook for production.

With gold still down by about 30% from its highs, the biggest miners are just looking at buying their competitors in a bid to bolster their output pipeline.

“The amount of capital being put into new gold mines is a most nonexistent,” Mr. Zell said. “All of the money is being used to buy up rivals.”

The combined gold reserves still buried in mines, an indicator of production prospects, shrank by more than 40% in Y 2017, from its peak after companies cut spending on exploration and development of new projects, according HeffX-LT’s data on big producers.

There are Key elements set up to extend Gold’s from just after the Y 2008 global recession to the precious Yellow metal’s Y 2011 all time high, signalling a comeback this year.

Gold Bugs are looking for a break out of its 5 year range, and technically it looks as though that the element for a sustained rally are firmly in place..

The Y’s 2008-11 rally that saw spot Gold almost 3X in value to reach a record of $1,920.30 oz was built on 3 Key fundamentals, they were:

  1. Strong physical demand from Top buyers China and India,
  2. Strong central bank purchases,
  3. Strong appetite for a safe-haven investment on the fallout from the global recession.

All of these factors worked together as Gold posted solid gains before being over bought by the crowd, with hot money chasing a trend driven by the usual pundit forecasts of a never-ending rally, that ultimately had to consolidate the excesses,

While central bank buying remained solid, the 2 other Key elements of Gold’s rally: the largely Western-driven investment buying and Indian and Chinese buying moderated after the September 2011 record highs.

The recovery in the global economy limited the fear-appeal of Gold, while the high prices stymied physical demand in India and China.

This meant that Gold has ranged between $1,050 and $1,380 since the start of Y 2014.

Notably, the recent 11% rally from a low of $1,159.96 oz on 16 August to the close of $1,291.65 on 14 January, Gold remains within that range.

However, there are signs that Gold will make a move to challenge the upper limits of its range in here.

A weaker USD is generally a boost to Gold, especially if the reason for the lower Buck is the winding back of expectations for more interest rate increases and the ramping up of concerns about an economic slowdown.

President Trump wants a weaker USD, and the Fed dovishness is signaling that he will get it along with a halt in rate hikes and perhaps even a return to stimulus,

The Fed is signaling it may be more patient with its monetary tightening.

Concern over the global economy is also increasing on signs of softer growth in China amid the ongoing trade dispute with The Trump Administration, and weaker manufacturing numbers in Europe and the United States.

As these fundamentals extend, Western buying of Gold as a hedge has a reason to increase.

Have a terrific Holiday weekend.

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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