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breaktwister,
the move to capture better yields than nothing ( and looking at lower risk) , has boosted the Dollar of course ...and much cash has moved from the Yen to the Dollar too.....
I agree...there will be a reversal.... at which point the Dollar will drop and gold will rise ......
I don't think we are there yet..... IMO
@Pokerchips and breaktwister
TPTB tell us that Fed target rates and forward guidance drive gold price, however, I've seen enough in my time to know that gold goes where they want it to go. We've seen some bizarrely counterintuitive moves and whenever there appears to be a breakout, the monkey hammer always comes down.
Gold was always historically both an inflation hedge and a mitigant against negative real rates, unfortunately it has failed both of those duties since the pandemic.
Agreed, it is absolute insanity and an indictment of a broken financial system that if nominal yields tick up modestly then algos hit SELL on real money/PMs and buy 2.5-3% yielding bonds which give you 10%+ negative real return.
Rule 1 of investing is do not fight the Fed
Rule 2 of investing is do not fight the algos
Slater I do t think gold has failed on your two criteria
A. It mimics inflation mid and long term. It preempted this bout. It is up 50% in 4 years and nearly 10 fold this century, but had gone too far too fast.
B. It reacts conversely to expected real interest rates, ie the bank rate against the ten year tips (inflation linked), this real rate has been rising and has gone positive, as market expects inflation to fall mid term, hence gold’s immediate fall imho. Gold doesn’t react fast to financial moves but the bigger picture. It has been right on inflation, it may be right or wrong on real rates but it is usually pretty prescient and says considerably higher rates will cause falling inflation
@Sotolo
We've respectfully discussed this a few times before and I doubt we'll ever agree :)
It depends on your timeframes which of course can be cherrypicked, over the long-term gold has offset inflation and then some. There's some on here who claim to have loaded up the truck when gold was less than $500/oz in 1990s and early 2000s, if true then they're laughing and wouldn't understand why there's an increasing consensus in the investing community that gold no longer hedges inflation or negative real rates, hence it falling out of favour by some Institutionals.
But in my (probably shorter) lifetime we've had a few breakouts (particularly 2011, 2020, 2022) where retail (and some larger players) get FOMO and piled into gold between $1800 and circa $2050 plus your physical premiums, only for it to always fizzle out and end in a giant rug pull.
All of these positions are not only underwater in themselves but you have to factor the failure to have matched or outperformed inflation. Official rigged figures being c10% but real inflation in 15-20% range. Those who bought physical silver are of course nursing huge, huge paper losses.
I've never bought physical silver but the highest I've ever paid for bullion was $1770/oz, it's been an underwhelming "investment" thus far to say the least.
Gold does align with major assets like houses here in the UK and that relationship that matches up back to 1981. Gold became abnormally over valued in the 1979-1980 spike. The relationship to major assets is not constant. Gold can be undervalued against assets or overvalued in say a 10 year time frame. To make things easy by historical assessment against house prices in UK outer London and the Southeast of UK gives a correct average median value of gold in USD at $1840 per ounce at this time. The gold price swing range from the median is 25% in either direction. So gold is massively undervalued at $1380 per ounce which is the bear market bottom and it hugely overvalued at $2300 as a bull market top at this particular time. Anyone buying gold and silver is long term. It is purchased on the basis of the destruction of one's national currency and degradation of USD purchasing value. Gold valuations are also influenced by the comparison assets themselves and forex currency changes with the swing changes around the median. Hope this helps. Tony
@Tornadotony
What's your definition of long-term though? One's assessment of gold's return is very timeframe specific. The same is not true for many other assets like property (in most countries) or many major stocks (particularly big tech so not obscure or unknown) where the vast, vast majority of people who bought in any given year over the last 15-20 years have made significant returns as of today.
Even if I'd just put $10k cash in a box around 2011-2012 or most months since summer 2020 and bought $10k of gold at the same time then as of this month the cash is worth more than current gold market value. It's a crude example I know but it's bizarre how people can still be down/incurred paper losses from buying gold over the last c15 years. Timing was/is everything.
Of course Slater, and that is why its useful to correlate the value of gold against something else that has real value to you. Over time the number of gold ounces that asset is worth will vary. If the asset is at the median value then you have greater confidence gold is at fair value. In 2011 it cost 360 ounces to buy an outer London semi detached house and in 2015 the same type of property was 720 ounces. At the present time its around 550 ounces. What you do not do, is buy gold when assets can be acquired for the lowest gold ounces. Its when you have to use a huge amount of your gold to acquire them gold is cheap. The idea is having your own calibration of assets is to identify over or under valuation. Gold corrects after a period of high inflation and usually not during it and has a lag. Tony
Good points Tony, here's to a hopeful HOC revival!
@ tornadotony - good post and I agree.
BTW - If the second hand car market is anything to go by then housing valuations are about to take a hit, possibly a big one. Gold does indeed react late to inflation but it'll come, it took 10 years to 20x bag through the 1970s inflation era.
In the meantime, mix your money between the Money Guy's usual inflation creator (energy) and inflation reactor (PMs) on drops like these and just wait it out IMO.
Afternoon.
In case you missed it - the cliff I suggested housing was about to go over a few days ago has indeed occurred - US housing train wreck numbers today.
US Housing is a problem because sellers wont drop prices and buyers refuse to buy..... in denial stage....prices up 10$ in a year let sales down 20%..only because there is a shortage or porperties that prices hold up in some areas
If FED only increases rates by 0.5% ( over 50% chance of that now says polls) then its wont ease prices enough - although by end of year it should do....
Maybe an up tick on gold today on that betting of the FED rate - market was pricing in 0.75%