Gold Trade Special Alert Update

July 11, 2015

gold price weakness

Gold’s weakness is related to the commodity trade at the moment.

It is suffering from a combination of the weight of the collapse in energy and metals (and other commodity) prices, a firm dollar that won’t last, and the general absence of expected panic on the Greek referendum - combined with the reality that gold also provides liquidity for bankers and money managers who need it to shore up margins or buy more stock.

A couple of things to note on gold.

First: never buy gold on a crisis, especially if there is any sign of its impending arrival.  It is always better to buy the mystery and sell the history in any market but this is especially true of gold for many reasons that are likely obvious.

I’ve done work on this.

It is best to buy into the anticipation of the event.

Although, it also makes sense to buy the market once the traders have sold their news.

The Crucial Factor for Gold/Silver: USD

The key to me is the US dollar.  There is a lot of confusion in currencies, and a lot of people are on the wrong side of the dollar trade, I strongly believe.  For one: the knee jerk reaction to sell euros on the fears of Grexit is absolutely wrong.

Not only is the euro oversold going into this thing, but even if the EU broke apart it would just be bullish for the euro.

All those businesses in the EZ aren’t going to turn to dollars just because the union falls apart.  There are norms that will not change overnight just because the money is made of paper.  Consider this.  If every country in the EU went its own way tomorrow and launched their own currencies, which most of them would then just inflate (probably), and the ECB was shut down, euros would be limited in supply and would probably hold their value better than all the other fiat currencies being floated against it.

I don’t know what would happen.  That is a speculation.

But I do not believe that the fate of the Euro and the fate of the EU are the same thing.

Ludwig von Mises had this insight that may be relevant,

"The valuation of a monetary unit depends not on the wealth of a country, but rather on the relationship between the quantity of, and demand for, money. Thus, even the richest country can have a bad currency and the poorest a good one" - On the Manipulation of Money and Credit p. 21

If the ECB cracks open the spigot wider and wider that is different.  That may happen.

For now, however, what I do see that currency traders are ignoring is that the US central bank is on its eighth year of ZIRP, and still afraid to raise rates.  The ECB’s policy is nowhere near as unsound.  None of the G7 banks have inflated like the Fed in the post 2008 environment.  The Fed itself has inflated money at twice the pace after 2008 as before.

It has created nearly $6 trillion dollars since the 2008 crisis, more than doubling the US money supply.

The 109% increase in money supply over this latest 8yr period compares to a 69% increase in the last boom between 2001 and 2006, and a 75% increase in the seventies.  This is obviously the biggest bubble the Fed has ever created.

These records should be no surprise in light of how far down and for how long they have suppressed the rate of interest at, well, nothing.  Investors are simply lulled to sleep by the effects of the policy on their portfolios.  The ECB, by comparison, has expanded the euro money supply by just 50% in the post 2008 period ( and euro M3 is up only 22%).

The BOJ reports it has expanded yen supply by 20% (M0), 30% (M1), 25% (M2), or 20% for M3.

Yet almost every trader on earth believes the official rhetoric and implication that the BOJ and the ECB has run a looser monetary policy than the US banking system – now driven by an overall bank credit expansion.

Let me ask you this?  If the BOJ really wanted to persuade the world it was inflating wouldn’t it have updated its numbers by now?  Why is it telling us it is inflating money but reporting money aggregates that are not growing very much at all.

The political noise and verbal rhetoric is distracting traders from the facts and economic law, and I see this as a big blunder.  The USD is the biggest accident yet to happen, imho.

As soon as you see confirmation of that FACT in the tape run for the hills… or for more gold!

Courtesy of

Ed Bugos is a mining analyst, investment banking professional, and senior analyst at The Dollar Vigilante (an online guide to surviving the dollar crash), with more than 20 years experience in the investment business advising clients on portfolio and trading strategies.

Throughout history the ruling class has always sought to own gold and silver because they represent purity and longevity.
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