Browsing through the diverse views of the many investment news letters and analysts opinions that fill my inbox daily together with the Donald’s reported political appointments and almost daily change of policies, it really has become impossible to forecast the direction the US economy will take in the first months of the new presidency.
Yet this doesn’t stop the certitude with which the vast majority of these pundits state their cases. From outright optimism to to despondency and despair they pass their opinions on to us as if each opinion is gospel and written ‘in the sand’.
On top of all this we have to take into account the undoubted manipulation gold suffers at the hands of the Fed and major banks.
Ignore the Basics
That leads us to this first conclusion, that gold traders and investors chuck common sense and logic out of the window, ignore the investment criteria that you believed moved the gold market in the past, particularly prior to 2011. Store of value, hedge against inflation, etc., etc., are no longer relevant to the short and mid term outlook for gold and silver prices.
No to Short Term Trading
A second conclusion we must consider as traders is whether there is any case to either go long or go short the metals.
Both have been tracking along without substantial movement either way since early November and there seems no catalyst in the offing to change that scenario until at least the end of the year so short term trading does not seem to be an option to us.
Shanghai a Real Time Gold Exchange
On January 1st. the Shanghai Gold Exchange, trading only in Physical metal comes into play. The importance of this relates to the gold futures paper trade that bears no resemblance to the amount of physical metal available to honor the transactions should delivery be required.
It should also hamper the western banks attempts to manipulate the price. Whether this has a positive affect upon the gold price in the mid term remains to be seen. As far as the short term is concerned it has yet to be seen to have an affect either because of ignorance or because it is not considered a realistic threat to the paper trade.
Therefore we believe it would be unwise to trade gold until this situation resolves itself and that may take months, maybe longer.
Gold a Tempting Buy?
Our final conclusion is that the price of gold today is a very tempting buy for the long term. Our reasoning for this is that Trump’s fiscal policies do not matter in the longer term. The writing is on the wall, the ever increasing amount of debt, both government, business and personal, simply cannot be sustained ad infinitum.
It has now gone too far to even be contained. The consequences will be devastating for the West, perhaps also even China. Historically gold has been the ‘go to’ haven to preserve capital and as the ultimate trading currency.
A Cashless and Goldless Society
The way through this conundrum sounds simple. Buy gold for the long term while we think prices are low. That raises the problem of timing but, more importantly, there are two other factors to consider.
- Firstly the move to remove currency from our pockets and onto the world wide web has been getting an increasing amount of coverage with several high profile pundits endorsing a cashless society. Whether it is a practical solution and would bring an end to the debt mountain remains to be seen.
- Secondly governments can make us surrender our gold to them as happened in the 1930’s, it would make even more sense coupled with ending traditional money.
On balance we think such a ready money confiscation would take years to come into effect, by which time the US economy would be in free fall. Should gold no longer be legally held can happen at any time with the minimum of notice!
But we specialize in trading precious metals so what is the answer?
Keep the bulk of our trading and investment capital in cash and buy long term (leaps) call options in gold, silver and top miners. We hold a position in Silver Wheaton (SLW) which we particularly like. This can give up to two years exposure to prices and if this isn’t enough time for the metals to make their move they can be rolled over for a further period.
In the meantime you have the capital readily available to take advantage when a clear trend is evident.