• 12 hours Walmart Reaches Out To Chilean Government For Protection
  • 16 hours The Most Exciting Gold Find Of The Decade
  • 18 hours Mining Boom Sparks Deforestation Concerns
  • 1 day The Cannabis Culling Has Wall Street Disappointed
  • 2 days Vigilante Offers $100,000 Bounty To Hack Banks
  • 2 days The Dairy Industry Is Dying
  • 3 days The Most Impressive Electric Vehicle Of The Year
  • 4 days Gold Miners Are Having A Stellar Second Half
  • 5 days How 3D Printing Is Turning Each And Every Industry On Its Head
  • 5 days Is The $3.5 Trillion Healthcare Industry About To Get Much More Transparent?
  • 5 days Gamblers Are Betting Big On Trump’s Impeachment
  • 6 days Even Banks Can't Answer Aramco's Trillion Dollar Question
  • 6 days Will Bezos Buy The Seattle Seahawks?
  • 7 days 6 Tech Trends Transforming The Travel Industry
  • 7 days Ousted Uber CEO Cashes Out $500 Million In Stock
  • 8 days Trump Prepares For Another Key Tariff Decision
  • 8 days The Free Money Bubble Is About To Burst
  • 8 days The Crushing Reality Of Poverty In America
  • 9 days Should You Buy Into The World’s Largest IPO?
  • 9 days The Infinite Possibilities Of Cosmic Energy
Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

Zombie Foreclosures On The Rise In The U.S.

Zombie Foreclosures On The Rise In The U.S.

During the quarter there were…

Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

  1. Home
  2. Markets
  3. Other

Gold's Safe-Haven Status is Not in Doubt

Below is an excerpt from a commentary posted at www.speculative-investor.com on 16th August 2015. Excerpts from our newsletters and other comments on the markets can be read at our blog: http://tsi-blog.com/


 

Gold is very different from all other commodities. This is due to physical characteristics that caused it to be money for thousands of years and led to its above ground supply becoming orders of magnitude greater than its annual production*. However, despite the huge size of its existing aboveground supply relative to the rate at which new supply is created, that is, despite its massive stocks-to-flow ratio, gold is still a commodity and its US$ price is still affected by the overall trend in commodity prices. In particular, a major decline in commodity prices will naturally put downward pressure on the gold price and a major advance in commodity prices will naturally put upward pressure on the gold price. That's why gold's performance can be most clearly 'seen' by comparing it to the performances of other commodities, with the most appropriate comparison being with 'non-monetary' metals**. Such a comparison reveals that gold has performed exactly as a safe haven should have performed given the economic and financial-market backdrops.

In particular and with reference to the following chart, we point out that the gold/GYX ratio (the gold price relative to the price of a basket of industrial metals) rocketed upward from mid-2007 through to early-2009 in response to the global financial crisis and severe economic recession of the period. The early-2009 high was an all-time high, which was a reflection of an extremely low level of general confidence in economic prospects and the abilities of central banks. The gold/GYX ratio then pulled back sharply as the crisis abated and an economic recovery got underway, but it stopped declining in the first half of 2010. Since then it has been making lower highs and higher lows, with a euro-zone (EZ) crisis causing a rise to just below the all-time high in 2011-2012, the semblance of economic stability in both the EZ and the US causing a steady slide from late-2012 through to late-2014, and the re-emergence of fears regarding EZ stability causing a couple of bounces over the past 9 months.

At the end of last week the gold/GYX ratio was near a 2-year high and close to the middle of the wide range that was established during 2009-2010. Note that by historical standards this wide range is at an elevated level.

Gold:GYX Daily Chart

There is currently a higher-than-average amount of confidence in the Fed, the US stock market and the US economy, which suggests to us that the gold/GYX ratio is now as high as it should be. However, we strongly believe that this confidence is misplaced and will erode over time, causing the gold/GYX ratio to break above its 2009 peak.

Unfortunately, we can't predict when it will happen. We thought that it would have happened by now, but, despite a lot of evidence to the contrary, a critical mass of people remains convinced that better economic times lie around the next corner.

 


*Gold's aboveground supply is so large relative to annual mine production that changes in the latter can safely be ignored when looking for price clues.

**Gold is no longer money in the true meaning of the word, but it still trades as if it were.

Regular financial market forecasts and analyses are provided at our web site: http://www.speculative-investor.com/new/index.html

Also, samples of our work (excerpts from our regular commentaries) and additional thoughts on the financial markets (and other stuff) are provided at our blog: http://tsi-blog.com/

 

Back to homepage

Leave a comment

Leave a comment