3 Forces Driving Gold and Gold Miners Higher
After hitting a top at US$2,089 on 7th August last year, gold has declined for the next 6 months until it gained traction recently.
Here are 3 forces that are driving gold and gold miners higher:
Force 1: Loss Of Confidence In Governments
The combined forces of the Sovereign Debt Crisis (inability of governments to raise money) and Global Monetary Crisis (which is their movement to cancel currency) will result in outright COLLAPSE in the confidence of governments and government debt. Global debt surges to an all-time record of US$281 trillion in 2020. That is over 355% of the world’s GDP and 67% (US$113 trillion) above that of the 2008 Global Financial Crisis (GFC). Any debt instrument of any level of government is NOT something smart money wants to have anything to do with. The long term U.S. bond market is starting to break down and what we will see is the movement of more capital from public assets such as government bonds to private assets such as gold to cause it to rise together with silver regardless of the economic conditions.
Force 2: Excessive Money Printing
Because of the COVID-19 pandemic, central banks around the whole world have been aggressively printing money, including Federal Reserve. M1 — the broadest measure of U.S.’s money supply — soared by an astounding 357% over the course of 1 year from February 2020 to February 2021 (yellow area)! When the money supply is increased, that means there is more money chasing real assets (like gold) and other stuff that people want to buy and this creates inflation. The pace of inflation hit 2.5 years high and inflation over the past year surged to 2.6% from 1.7% in the prior month, which is the highest level since 2018. Gold has long been viewed as a safe harbor against inflationary forces (because gold cannot be printed) and rising inflation will have positive effects on gold prices.
Force 3: Negative Real Yields
We can see that gold tends to rise as the real yield plummets, the most recent case happened at the end of March when gold started moving higher as real yield collapsed. One of the complaints bears have about gold is that it pays no interest. Now with inflation going up, the 10-year U.S. Treasury is yielding less than zero and this makes gold look more attractive even without any yield.
How can we profits from the rise in gold price? One way is to buy individual gold miners, developers and explorers. But if one does not want to do all the research and take the risk of individual stocks, he/she can buy an exchange-traded fund (ETF) of the best gold-leveraged stocks. For example, I entered VanEck Vectors Gold Miners ETF (GDX) at US$34.49 (blue circle) recently when it broke up from a consolidation range. While gold is up 2.87% since its March low, GDX is up by 17.67%, which is more than 6 times the performance of the underlying metal. This is because miners are leveraged to the metal. That is, while gold prices go higher, their mining costs remain relatively the same, as a result they make wider and wider profits on every ounce.
Me and my Timing & You members have been riding on the recent rally in gold and silver as part of the commodity bull run into 2024. I know more is to come for the precious metals boom, so if you want to join us, you can find out more about Timing & You here — https://timingandyou.com/timing-and-you-cycle-analysis/
** Please note that what is being shared in this article is NOT meant to be regarded as an advice or a recommendation, it is meant for EDUCATIONAL AND INFORMATION PURPOSES only and it does not constitute an investment advice, an offer or solicitation to purchase or sell the investment asset classes mentioned. **
