The emotional intransigence that dominates most gold analyzes contributes to confusion and misunderstanding. For example, “The background for gold today is bullish as it has been for a long time”; or “The precious metals sector is the main signal to buy.” These and other similar claims are often backed up by loads of technical analysis – the best money can buy.
And this is on top of the general misconceptions. There seems to be virtually no justification for lower gold prices unless it is caused by manipulation associated with conspiratorial forces.
Otherwise, world tensions, terrorism, natural disasters, social unrest, economic weakness, interest rates, inflation, trade deficits, demand for Indian jewelry, etc., etc. It puts everything “under” below the price of gold. At least that’s what they tell us.
And timing. Oh, my word; timing! “Now or never).” “Gold has finally broken through its upper resistance.” “$ 2,000 / oz by the end of 2017.”
Does understanding a gold require a degree in cyclical theory or financial mathematics? Or is it related to climate change?
There is a simpler and better explanation for gold. It only takes a little historical observation.
1) First and foremost is the simple fact that gold is real money.
Its value (purchasing power) is constant and stable. And his role as money was created by trial and error. Gold has stood the test of time.
2) Second, paper currencies are a substitute for real money.
Gold is also original money. It was stored in warehouses, and certificates were issued to the owners that reflected the ownership and ownership of the gold on deposit. Accounts were bearer instruments that could be traded and exchanged.
3) Third, inflation is caused by government.
One thing that should be clear from history is that governments are destroying money. That may sound harsh, but it’s true. And when we say “destroy,” we mean just that. Governments and central banks deliberately practice inflation. Its effects are serious and unpredictable. The U.S. Federal Reserve Bank has managed to destroy the U.S. dollar by bits and pieces over the past century. The result is a dollar worth 98 percent less than in 1913 when the Fed began its great experiment.
The relationship between gold and the US dollar is similar to the relationship between bonds and interest rates. Bonds and interest rates are reversed. Like gold and the US dollar.
If you own bonds, then you know that if interest rates rise, the value of your bonds falls. Conversely, if interest rates fall, the value of your bonds rises. One does not ‘cause’ the other. Any result is the actual inverse value of the other.
A stable or strengthening US dollar means lower gold prices. The fall of the US dollar means higher gold prices.
In other words, higher gold prices are a direct reflection of the weakening US dollar.
And don’t confuse the US dollar with the US dollar index. U.S. dollar indices tell us nothing about the price of gold. The dollar index reflects changes in the exchange rate of the US dollar against other currencies.
The real changes in the value of the US dollar are reflected in the growing general level of prices of all goods and services – over time.
The threat of world war is ominously present today. Countries and municipalities go bankrupt. And terrorist acts are an almost daily occurrence. This is an addition to an economy that cannot improve or maintain an acceptable growth rate.
Well, let’s buy gold, right? Maybe, maybe not. You see, gold doesn’t care about those things. He doesn’t care if someone fires a missile armed with a nuclear warhead or the state of Illinois declares bankruptcy. And it doesn’t respond to comments from Janet Yellen or Donald Trump. The demand for Indian jewelry is not on his radar. Not even the start of housing.
Gold answers one thing. Changes in the US dollar. Nothing else.
A consistently weaker dollar over time means higher gold prices.
Periods of dollar strength are reflected in falling gold prices.
Let’s talk for a moment about North Korea and the threat of war. It is a very frightening situation. But even if things get worse, it won’t have an impact on gold prices. Here’s why:
In the late 1990s, there was a lot of speculation about the potential effects of the upcoming Gulf War on gold. There were some jumps in price increases and anxiety increased as the target date of the “action” approached. Almost simultaneously with the onset of the bombing by U.S. forces, gold withdrew abruptly, giving up its previously accumulated price rises and actually falling.
Most observers describe this reversal as somewhat of a surprise. They attribute this to the rapid and decisive action of our forces and the results achieved. That is an appropriate explanation, but not necessarily accurate.
For gold, the most important was the war impact on the value of the US dollar. Even long-term involvement would not necessarily undermine the relative strength of the U.S. dollar.
It brings us all back to a simpler and better explanation:
As for gold, it’s all about the US dollar.