Gold: Add a Zero to Your Net Worth
The comments above & below is an edited and abridged synopsis of an article by Tom Beck
Gold is an important commodity. No other metal is suited to be money as flawlessly as gold. Many societies have tried and failed to use other systems, but gold has never wavered or disappointed.
It does, however, go through cycles, based on how much yield cash savings are generating and how stable the monetary banking structure seems to be.
Trump’s election boosted confidence for businesses, and the Fed’s teasing regarding rate hikes had things looking normal. But the Fed’s reluctance to hike rates has exposed their real outlook for the economy, causing a short squeeze.
This means that all the institutions naive enough to bet against gold are going to sell their bets, while the gold price rises at the same time.
Beck doesn’t want to simply see gold bullion be worth more (he doesn’t plan on selling). Instead, he wants to get maximum leverage.
Since the start of the year, the 5-year Treasury yield has risen about 150%. This would put tremendous pressure on the price of gold under normal circumstances—higher yields raise the opportunity cost of buying gold—but over this same period, the dollar has weakened and is now officially in a bear market.
Gold is priced in dollars, and this has been supportive for prices. Year-to-date, gold is up more than 8%, but no one is bullish. This is precisely when you want to be bullish.
There won’t be any rate hikes until December, so it should be smooth sailing for gold over the next 3 to 4 months.
Gold currently has a net long position of only 37,776 contracts. For gold to be trading over $1,250 with such a small net long position is extremely bullish. At the beginning of 2017, gold had a slightly larger net long position of 38,923 contracts, but was trading for only $1,137.