This Week’s Thoughts On Gold Investing

| October 22, 2019

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Your sleepy Gold Enthusiast woke up bullish this morning for no apparent reason.  Yes, gold is hovering along between 1480 and 1500 in a bullish flag chart formation, and Yes, Russia admits they’re accumulating gold to help steady their economy.  As all countries should probably be doing…

But as the morning coffee kicks in, it’s more than that. The real bullishness seems to be coming from the growing realization that the US has entered a new phase of Quantitative Easing (QE), whether the Fed admits that’s what it is or not. Let’s face it – saying they see a need to buy $60 billion in bonds every month into the foreseeable future is not exactly saying the economy is robust and can stand on its own at the moment. In fact it’s saying the exact opposite.

Underneath the surface, what this Gold Enthusiast thinks happened is that US banks became so accustomed to risk-free money these past 10 years that they’ve forgotten how to manage their assets properly. As in: evaluate business proposals, assign risks and appropriate interest rates to loans, and grow their depositor’s money through sound decision making. Banking in a large part has turned into a middle-man business rather than a participation business, with all the lowering of standards that brings. Free enterprise depends on the threat of loss as a stabilizing mechanism. Take that away and people start making all sorts of stupid decisions. But that’s a long discussion, so let’s try to stay on track.

The real impact of Brexit and the US-China trade talks on the price of gold is psychological. These events expose issues that have been below the surface for a while, issues that show all is not rosy in the world. There is more uncertainty than most people would like to admit. That makes people nervous, and nervousness eventually drives people into safe-haven investments, like gold.

At this point, we think Brexit and the trade war have served their usefulness as alert mechanisms. People are aware of these issues and are looking more broadly. And they see instability. It’s not a case of if it’s a case of when.

The important issues won’t be fully faced this week. So we’re expecting another sideways week for gold. The next big factor on the horizon is earnings season. The big gold producers start reporting earnings on Nov 5th when Newmont Goldcorp (NEM) steps into the earnings confessional.  We expect gold miners to report higher earnings this quarter than last, because the price of gold was about 200 USD higher this quarter. That may not be enough to spark the next upleg, but it will keep investors’ attention primed, so they should more readily switch into gold at the next big sign of increasing economic troubles.

Signed,

The Gold Enthusiast

DISCLAIMER: The author has no direct position in any security mentioned in this article. The author is long the gold sector via positions in NUGT, JNUG, a few junior miners, and covered calls on parts of the NUGT and JNUG positions. The author may initiate new covered call positions in NUGT and/or JNUG in the next 72 hours if market conditions warrant.

Note: This article originally appeared at The Gold Enthusiast on October 21, 2019.

 

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Category: Gold

About the Author ()

Mike Hammer has had a wide-ranging career, with trading and investing as a continuing theme. Mike graduated from UC Berkeley with a business degree, then worked with Macy's in their operations arm. He left Macy's and spent a summer trading his own account, which taught him a lot about trading in general and markets in particular. Trading through the Black Monday and the Crash of 1987 showed him how most people are unprepared for upheavals in their trading. He then joined Waddell & Reed as a financial advisor, helping regular people understand their finances and meet their life goals. Then came the usual story - Mike met and married the lady of his dreams. They moved to upstate New York, where Mike worked first for a small manufacturing consulting company, then Cornell University. While loving the work and the higher-education atmosphere, Mike missed the world of finance. Eventually, he signed up for stock trading coaching with the Adam Mesh Trading Group, to learn from people who understood modern markets. Within a year, Adam asked Mike to become a stock trading coach. Since then, Mike has trained over 200 individuals, spoke at several national conventions, and is a frequent contributor to conference calls across the Adam Mesh community. Mike writes The Gold Enthusiast daily newsletter, runs the Golden Hammer trading service, and participates in the Mesh Private Portfolio. He also keeps a position in international education which keep him in touch with "the student mindset". Mike closely follows the gold, energy, and financial sectors. His motto is "Plan your trade, then trade your plan!"
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