Gold: New High Imminent?

by JDH on July 18, 2020

Last week I discussed deflation, so how is it that this week I’m discussing a potential new high in gold?  Doesn’t gold do well when inflation is running wild?

Yes, but apparently gold is on a nice run during these deflationary times as well.

The peak around $1,923 was hit at the beginning of September, 2011.  The bottom was around $1,050 at the start of December, 2015.  Gold never did fall below the magic $1,000 level.

And here we are, in mid-July, 2020, and gold is comfortably above $1,800, so a 7% increase from here and gold will make a new all time high.

So why is gold going up while we have negative inflation?

There are two obvious answers:

First, gold is a store of value, so during a deflationary or inflationary period, gold retains its value.

The second answer is that the market expects inflation, due to massive government money printing, so given the massive pandemic stimulus in every country in the world, higher inflation, while perhaps not imminent, is inevitable, and gold is pricing that in.

I don’t know if gold will make a new high soon, or if it will pull back, consolidate, and then go on a run, but given the obvious cup-with-a-handle formation in the chart above, a new high does appear inevitable.

I am quite satisfied with my gold stock positions, but I am also a realist.  Some are up big time, so I am taking some money off the table.  If you have a double, why not sell half of your position so that you hold the remaining shares risk free?

Helps you sleep at night.

That’s what I’m doing.

Enjoy the ride.  See you next week.