Hard Assets Alliance was created as a cooperative of investment professionals who believe there’s a better way to invest in precious metals. This is a guest perspective on the markets from one of these partners; we hope you enjoy it.
The critical breakthrough the gold price just made… and three reasons it’s going higher from here.
After six long years in the wilderness, “gold has now broken out to the upside,” says Jim Rickards.
And it’s been a long time coming.
Some history: Gold set a record of $1,900 an ounce around Labor Day 2011. It was downhill from there.
By early 2013, it had broken below $1,650 and our resident chart hound Greg Guenthner declared gold was in a bear market.
Jim picks up the story from there: “During that precipitous decline after 2011, gold hit a level of $1,417 per ounce in August 2013. It was the last time gold would see a $1,400 per ounce handle until last month.”
Yikes, that chart is the classic picture of an asset that’s “range-bound.” The peak during those six years came three summers ago, around $1,375, when global markets freaked out over the Brexit referendum in Great Britain.
So you can see how a breakout above that $1,375 level is even more significant than the breach of the $1,400 level.
And with that, “a new multiyear bull market has now emerged,” Jim goes on.
“Turning points from bear to bull markets (and vice versa) are not always recognized in real time because investors and analysts are too wedded to the old story to see that the new story has already started.”
Jim’s being overly modest here. The Dec. 11, 2015, episode of The 5 featured highlights of a conversation between Jim Rickards and Jim Rogers, the legendary “adventure capitalist” and best-selling author.
Together, they darn near called the bottom on the above chart — to the day.
During that conversation, Rogers laid out a truism: “No commodity goes from a baseline to a permanently new high without a 50% retracement along the way.”
That’s exactly what happened during gold’s first bull market in the 1970s. After President Nixon cut loose the dollar’s last moorings to gold, the dollar price of gold zipped up from $35 in the summer of 1971 to $200 by late 1974.
And then it got cut nearly in half, bottoming out around $105 in September 1976.
At that moment, when nearly everyone was ready to throw in the proverbial towel, gold took off again — all the way to the peak of over $800 in January 1980.
The next bull market in gold began around $200 in 1999. In the long-term scheme of things, it’s still underway — but oh, that “retracement” was a doozy.
Again, the peak came in September 2011 at $1,900. And the bottom came around $1,050 in December 2015 — yep, nearly a 50% drop — within days of the two Jims’ gold discussion here in our virtual pages.
Note the price of $1,375 in the summer of 2016 on that chart. Now you get a visual sense of why a breakout above that level is such a big deal.
So why the breakout now, you ask?
“From both a long-term and short-term perspective, there are three principal drivers,” says Jim Rickards: “geopolitics, supply and demand and Fed interest rate policy.”
- Geopolitics: “Global hot spots (Korea, Crimea, Iran, Venezuela, China and Syria) remain unresolved and most are getting worse. Each flare-up drives a flight to safety that boosts gold”
- Supply/demand: “The situation remains favorable with Russia and China buying over 50 tons per month to build up their reserves, while global mining output has been flat for five years”
- Fed policy: “The Fed cut rates at the last FOMC meeting July 31.”
Gold has emerged from its range-bound wilderness. No time like the present to hedge the rest of your portfolio with the Midas metal.
Jim has long recommended a 10% allocation — not a gold ETF but the real deal, actual metal you can hold in your hand, and for God’s sake don’t store it at a bank.