Gold broke above $1,500 this week, and as I write, it’s holding near that level. Gold bugs around the world are celebrating. But what are the best ways to make money on what comes next? That’s what an independent speculator wants to know.
First, it’s important to understand that the number itself is not that important. For companies that produce gold, $1,499 is much the same as $1,500. It’s the magnitude of the increase that matters; companies that were making $100 an ounce at $1,400 make twice as much at $1,500The first is the weakening outlook for the US dollar, which is generally bullish for commodities priced in USD. This is why we saw gold moving up as it became evident that the Fed was going to cut rates. The July 31 cut of 0.25% was just a starter, in my view. The Fed can say everything is fine and call it insurance, but I don’t believe it. Neither does the bond market, as shown by the inverted yield curve—which has predicted every US recession in the last 50 years. There are other danger signs flashing red as well, and the Fed has shown repeatedly since 2008 that it will throw the USD under the bus to try to keep the economic party going.
This is all very bullish for gold.
That’s great, but there’s more. One of the most notable trends of the decade is that major central banks around the world are moving toward or deeper into negative nominal interest rates. I think this will be seen as a game-changer by future economists; it destroys the longstanding complaint of mainstream investors that gold doesn’t pay interest. Gold may not do that in a strictly technical sense, but zero interest sure beats negative interest.
In our world today, gold is becoming a competitive form of savings, even for non-gold bugs.
That puts greed in the service of gold. I think greed is what drove gold above $1,400. And I think greed is likely to drive gold higher in the near- to mid-term.
It was fear, however, that took gold from $1,420 to $1,500 in little more than a week.
