Cash is trash: take cover from the blizzard of paper

As you may have read, I am bullish medium term on commodities, especially Gold and I pick up from yesterday's article in respect to investors such as Soros, China, Russia and other nations all ahead of the curve getting long of the yellow metal and out of the US dollar.

However, today, gold accelerated its decline to fresh multi-week lows and has kept going since my colleague Haresh Menghani, analyst at FXStreet, reported on it in London earlier today. So, I just want to pick up on that and suggest that these are a godsend for those investors who wish to hedge against a world economy in decline.

Gold itself has been in decline since the start of May this year after a strong 2016 bull trend until now. So, let's take this back little by little to see what we can unveil from historic price action to give us an idea of what might be expected in the future.

Gold's 2006 bull trend


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The bull trend of late 2006 that really took off between 2009 - 2011 was fuelled by Bernanke's QE program initially after the global financial crisis entered its darkest days. Further into the rally and financial crises, along came the EZ debt crisis underpinning golds rally.

Institutions, investment funds, pension funds and retail specs all thought Bernanke's QE program would be inflationary. At the same time investors hedged against financial market volatility and vulnerability as several European governments including Greece, Spain and Portugal were imposing their austerity measures. Gold rallied from $681 round number in October 2009 to a record high of $1,861 round number by Sep 2011.

Note:


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"What I take away from that bull market was, a) gold was used as a commodity and a safe haven (just as it has been for 5000 years - it has never been to zero) and b) was perceived as a hedge versus inflation (and diluted purchasing power of the greenback) that actually never came, until now - (at least Bernanke got one thing right and said the program could in fact be deflationary, but failed to mention that thereafter, hyper inflation would eventually come about), but it still continued to rally along with the commodity sector as a whole. The risks to that trend were foreseen stability in Europe and the US again."

Gold's 2012 bubble


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Then, the bubble was confirmed. Soros got short temporarily, the market followed suit and the price moved back to its previous resistance within $1,500's during a period of stagflation. There was a spike and a rally to $1,795 in a continuation of global concerns when Greece was potentially going to need to leave the euro. This reignited Europe's crisis and at the same time, the U.S. central bank embarked on a third round of stimulus in June 2012. However, in December 2013, Bernanke finally announced that the Fed would be tapering and the yellow metal started to decline as markets started to look for the end of the program and for the Fed to start reducing its balance sheet and to even shift towards normalizing monetary policy.

Investment interest was drying up in commodities and we were back to the old supply/demand fundamentals that move commodities. Another wave of supply came about when in August 2015, the Eurogroup finally announced to the world that it agreed on a new bailout deal for Greece, that would now "irreversibly" remain in the Eurozone. Gold reached a low of $1,046 in December 2015 as the Fed hiked rates by 0.25bps and promised more to come in 2016.

Time for homework


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And that, dear readers, is probably the lowest price we will see in Gold for a very, very long time without Central Bank manipulation, (outright fraudulent activity). Well, what do you think justifies this current bout of supply in Gold, purely odds in favour of a Fed hike in June? I will set you some homework and see if you can figure out the answer - Look up the practice of gold leasing.

The blizzard of paper money


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I believe we are at, as what I see as, the second phase of Gold's bull trend. I am waiting for the wealth transfer in this "blizzard of paper money". The wealth transfer is when gold and silver are repriced to all the world's money supply that has been increasing exponentially over the years engulfing us in a blizzard, blinding us from seeing where the real money's at; and there is a lot of catching up to be done.

I will leave it there for today, but this will be continued tomorrow and within further articles where things get really interesting.

Prelude


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"I am not a conspiracy theorist, but I do not walk the tight rope of life blindfolded either and like to be aware of my surroundings. I will keep an open mind vs the mainstream views and opinions and what information we are fed through the mainstream media channels and ultimately, our world leaders, giant corporations and governments as well as our Central Bankers" ...

• History of money
• Fraudulent market manipulation, Gold leasing and price fixing.
• The Federal Reserve is a private agency
• Treasury IOU's at $42.22 oz and illegal accounting
• US government and Enron not so dissimilar
• Why ETF's are ridiculous
• Central Banks abusing currency world wide
• The Fed Can't hike. Hyperinflation
• Three phases of a bull market
• Biggest gold rush in history
• Gold to $,8000++? Silver an even more promising investment?