Boom or Bust For Gold

By Christopher Blasi

Precious metals prices, particularly gold, have been in a period of price consolidation since the late summer. This current period has been characterized by sometimes violent price moves within a defined range. The net of this volatile action has resulted in neither a price breakout or reestablishment of a trend to either the upside or downside. How long might it be before this directionless period passes…and in what direction might prices go?

First, let’s look at the economic fundamentals that have powered gold on its 10 year bull run. The most basic price driver for gold has been the debasement of the U.S. Dollar. This debasement has occurred, and is continuing at this very moment, due to the unrelenting issuance of new dollars and new debts as a means of preventing our consumer economy from falling into the abyss. So, going forward, if the U.S. were able to stop or greatly reduce its need to bail out, prop up and/or generally support banks, businesses, housing, public sector payrolls, education, healthcare, food stamps, etc., then the prospects for gold’s continued assent would diminish. But, if monetary intervention by the U.S. Treasury and Federal Reserve were to continue in order to support this system, plus lend support to foreign banks like is happening now with U.S. dollars in Europe, then gold would still retain the fundamental drivers that have supported its price trajectory thus far.

Second, there is an old adage ascribed to investing which says “the trend is your friend.” Applied to the matter of gold, let’s look at a picture of gold’s performance over the last decade (chart below). Upon immediate observation, it is clear that the yellow metal has ascended in a fairly orderly manner. Also, with all the hand wringing in regard to this current period of price consolidation, gold has not violated the upward sloping long term trend line to this point.

In conclusion, we have looked at a key fundamental behind the gold historic bull run and the basic pattern related to the price action for gold, aka technical analysis. While trying to guess the short term price moves of any investment is generally a fruitless endeavor, from a longer term perspective one could surmise that gold’s prospects going forward would appear positive in light of:

  1. The fundamentals responsible for debasing the U.S. Dollar and consequently driving the price of gold look to be firmly in place and most likely intensifying.
  2. The long term trend for gold has been strong, steady and accelerating.

A truly diversified investment portfolio has always called for a position in gold. At this juncture in our nation’s economic journey, it looks like this investment axiom is more important than ever.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Neptune Global Holdings LLC (Neptune). The author has made every effort to ensure accuracy of information provided; however, neither Neptune Global Holdings LLC nor the author can guarantee such accuracy. This article is strictly for informational purposes only and a sampling of diverse editorial opinion. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Neptune Global Holdings, LLC and the author of this article do not accept culpability for losses and/or damages arising from the use of this publication.  Neptune does not act as, nor offer the services of, an investment advisor. Individuals should conduct their own due diligence before making any investment choices.

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