Great chart: gold vs. global liquidity

In the past few months, gold has been showing some signs of ‘fatigue’ with market participants starting to price in a smooth ‘Covid-19 exit’ with the vaccination campaign. However, major drivers of the precious metal such real interest rates or the total amount of negative-yielding debt are still sending bullish signals; we think that market participants are underestimating the impact of social distancing and travel restrictions in the medium term.

With another 3tr USD of liquidity expected to reach market this year, it looks like the downside risk on gold remains limited as we think that most economies will rely on debt (therefore more liquidity) in the coming two years, which implies strong demand for the ‘currency of the last resort’.

Main risks in the near term: rising optimism over the vaccine campaign, warmer days and USD strength.

Source: Eikon Reuters, RR calculations

Trade Gold Using Moving Average Crossovers

Introduction to moving average crossovers

Moving averages are the most widely used indicators in technical analysis, and help smoothing out short-term fluctuations (or volatility) in order to highlight a longer-term trend. Traders classically use the past daily (or intraday) prices to compute their time series, applying different variations of moving averages. In this article, we are going to look at a basic momentum strategy looking at a simple moving average (SMA) crossovers as our signal to buy or sell the underlying asset, gold. In this strategy, traders build a trading signal based on moving average crossovers, by taking a long position if the shorter (faster) moving average is above the longer (slower) moving average, and a short position if the shorter moving average is below the longer moving average (see more here).

For instance, the famous terms ’Golden Cross’ and ’Death Cross’ result from crossovers of the 50 SMA and the 200 SMA. ’Death Cross’ is when the 50 SMA crosses the 200 SMA to the downside, signalling a potential long-term bear market on gold (figure 1).

Figure 1

Source Eikon Reuters

Which parameters should we use to build a SMA crossover strategy?

Even though the 50 and 200 SMAs are probably the most popular moving averages that investors tend to watch carefully, we first have to check if there have been different combinations in the past that have generated ‘enhanced’ returns. Therefore, using daily prices on gold, we look at different combinations of SMA crossovers, with the short SMA ranging from 2 to 50 and the long SMA ranging from 5 to 200. We then compute the Sharpe ratio of each of the combination, which we define as the ratio of the annualized returns over the annualized volatility of the entire sample:

As there are many different combinations, we decide to use a heatmap to detect if there are some ‘hot’ and ‘cold’ areas. How to read a heatmap is pretty straightforward:

  • The red areas are ‘hot’ areas, which implies that the SMA combinations have been working well in the past few years.
  • The green area are the ‘cold’ areas, which are the combination to avoid if you want to build a systematic strategy on gold using SMA crossovers.

In our first backtest, we look at the daily price of gold since 2016; results are shown in Heatmap 1A and 1B. It is important to know that the parameter of the short SMA cannot be bigger than the parameter of the long SMA (blue shaded area).

The ‘Death Cross’ strategy stands at the bottom right of the entire heatmap (Heatmap 1B) and has generated a Sharpe ratio of 0.75 over the past four years, which is less than the ‘long-only’ strategy (long GLD) with a Sharpe ratio of 0.87. The combination that has generated the highest performance is the (35,37) SMA crossovers, with a Sharpe ratio of 1.36.

Figure 2 (left frame) shows the equity curve of the long-only (GLD) versus the traditional ‘Death Cross’ and the (35,37) SMA crossovers. The (35,37) SMA crossover strategy shows that investors would have captured the late declining by going short GLD in the past few months. Figure 2 (right frame) shows the changes in signal for the two strategies; while the Death Cross strategy is very slow and has changed signals only 5 times in the past 5 years (currently sending a buying signal as 50D SMA is trading above the 200D SMA), the (35,37) has a higher frequency and has been sending a sell signal since mid-September to the exception of a few days. As we look at daily prices, we assume that the transaction costs are negligible for a commodity such as gold.

Heatmap 1. Sharpe ratios of SMA crossovers strategy using daily prices of gold since 2016

Heatmap 1A (Long SMA from 5 to 105)

Source: Eikon Reuters, RR calculations

Heatmap 1B (Long SMA from 105 to 200)

Source: Eikon Reuters. RR calculations

Figure 2

Source: Eikon Reuters, RR calculations

In our second backtest, we look at the daily price of gold since 2010 in order to capture the bearish momentum in gold prices that occurred in the first half of the last decade; results are shown in Heatmap 2A and 1B. First, we can notice that the Sharpe ratio are significantly lower, which is not surprising as gold consolidated sharply after reaching its previous high of in September 2011. The ‘Death Cross’ strategy has generated a Sharpe ratio of 0.29, which is again much lower than the ‘long-only’ strategy with a Sharpe ratio of 0.37.

The winner combination this is the (27,53) SMA crossover generating a Sharpe ratio of 0.64.

Figure 3 shows the equity curve of the long-only (GLD) versus the traditional ‘Death Cross’ and the (27,53) SMA crossovers. We can notice again that the Death Cross strategy have barely changed signals in the past decade.

Heatmap 2. Sharpe ratios of SMA crossovers strategy using daily prices of gold since 2010

Heatmap 2A (Long SMA from 5 to 105)

Source: Eikon Reuters, RR calculations

Heatmap 2B (Long SMA from 105 to 200)

Figure 3

Source: Eikon Reuters, RR calculations

Closing thoughts

Even though a lot of investors tend to focus significantly on the Death Cross 50/200 signal when defining bullish or bearish trends coming from momentum strategies, we have seen that this strategy has performed poorly in either the past 5 years or since 2010. We know that past performance does not guarantee future returns, but it is important to add the most powerful ‘quantitative tool’ to your fundamental analysis. At the moment, fundamentals signals on the GLD are mixed; on one hand, the weak USD and the large amount of negative-yielding debt are pricing in stronger GLD, but rising yields in the US could weigh on the pressure metal in the short run. As we saw in the article, the best combinations are also sending bearish signals on GLD.

It is time to diversify the traditional 60/40 equity bond allocation

With interest rates trading at or close to zero percent in most of the developed world, investors have been questioning if government bonds still act as a hedge against periods of market stresses, which are usually negative for equities. One of the most important characteristics of the traditional 60/40 equity bond (and also the ‘all-weather’ portfolio risk parity) has been the negative correlation between equity returns and changes in long-term bond yields. Figure 1 shows that the 3-rolling correlation between US equity returns and the 10Y bond yield turned negative in the beginning of 2000s after being positive for decades (using weekly times series)

However, we are not confident that the correlation will remain negative (implying that bonds are rising when equities are falling) in the medium term, especially if we switch to more inflationary environment after restrictions are lifted. Even though the disinflationary forces will remain significant in the coming 12 to 24 months due to social distancing, investors must not assign a zero-percent probability of a sudden rise in inflation expectations in the future.

Figure 1

Source: Eikon Reuter, RR calculations

Why not swap some of your bond allocation, which currently offers a very limited upside, for gold, which offers ‘unlimited’ upside gains as money supply continues to grow dramatically in most of the economies. Figure 2 shows the performances (and drawdowns) of four different portfolios:

  1. A equity long-only portfolio
  2. A 60/40 equity bond portfolio
  3. A 60/35/5 equity bond gold portfolio
  4. A 60/30/10 equity bond gold portfolio

We can notice that investors would have got similar returns if they had held 5 to 10 percent of gold in their portfolio instead of bonds in the past 50 years. It is time to diversify the traditional 60/40 equity bond portfolio.

Figure 2

Source: Eikon Reuters, RR calculations

Silver: Mind the June correction!

Even though price volatility has eased significantly across all asset classes amid the massive liquidity injections from central banks, the market could experience another little selloff in the near term due to the rising uncertainty coming forward. In addition, we know that most of the risky assets tend to perform poorly in the ‘summer’ period that runs from May to October.

Although some investors may define silver as a risk off asset, we recently saw that the precious metal has performed very poorly during periods of market stress. We think that silver could experience some weakness in the short run, especially now that we are approaching the month of June. In figure 1, we compute the average performance of silver for every month of the year since 1982; interestingly, June has historically been the worst month with silver falling by nearly 2% on average.  Time to sell and go away?

 Figure 1

Source: Eikon Reuters, RR calculations

One particularity of a safe-haven asset is that it is negatively correlated with the performance of equities during periods of panic and selloffs. For instance, we saw that gold performed strongly in the past two equity selloffs, up 7% in Q4 2018 and 3.5% in Q1 2020 while equities were down by 14% and 20%, respectively. Figure 2 shows that silver did not act as a zero-beta asset and co-moved strongly with equities during the February / March panic. We strongly believe that investors have this chart in mind for the coming months and that a little 10%-15% drawdown in stocks in the near term will certainly lead to a little (bear) consolidation in silver.

Figure 2

Source: Eikon Reuters

Even though some analysts are currently saying that silver looks extremely undervalued relative to gold (gold-silver ratio is still elevated relative to its long-term average), we do not think that the ratio will matter in the near future and we could have another divergence between the two precious metals. Figure 3 (right frame) shows that prior the Covid19 crisis, a surge in gold prices had historically been followed by a surge in silver 3 weeks later since the start of 2015. However, we can notice that the two assets have strongly diverged in the past few months.

Figure 3

Source: Eikon Reuters

In short, stay away from silver in June!

Great Chart: Gold price vs. Negative-yielding debt

Empirical researchers have demonstrated that gold has had many drivers over the past few decades, but has been mainly influenced by interest rates, inflation trends, the US Dollar, stock prices and central banks reserve policies. Baur and McDermott (2010) also shows that the precious metal plays the of a safe ‘zero-beta’ asset in periods of market stress and equity selloffs. For instance, in the last quarter of 2018, US equities (SP500) fell by 14% while the price of gold in US Dollars was up 7.6%. In the short run, participants usually look at the co-movement between gold price and real interest rate (TIPS) to define a fair value of the precious metal (gold price rises when real yields fall and vice versa).

However, gold has shown a stronger relationship with another variable in recent years: the amount of negative-yielding debt around the world. This chart shows us the striking co-movement between the two times series. After oscillating around USD 8 trillion between the beginning of 2016 and the end of 2018, the amount of negative-yielding debt doubled to nearly USD 17 trillion in the first half of 2019 amid political uncertainty and concerns over global growth, levitating gold prices from $1,280 to $1,525. However, we have noticed that investors’ concern has eased in the past two months, normalising global yields (to the upside), increasing the US 2Y10Y yield curve back to 25bps after turning negative in the end of August, therefore reducing preference for ‘safe’ assets such as bonds. The amount of debt yielding below 0% has dropped significantly since the end of August to USD 11.6 trillion this week, dragging down gold prices to $1,460. We think that market participants have overreacted to the global growth slowdown in the first half of the year and that the rise in leading indicators we have observed in the past three months (i.e. global manufacturing PMI) will continue to push preference for risk-on assets. The amount of negative-yielding debt could easily come back to its 2016-2018 8-trillion-dollar average in the following months, hence emphasising the downward pressure on gold prices. It looks like gold is set to retest the $1,350 – $1,400 support zone in the short run (which used to be its resistance zone before the 2019 rally).

Chart.  Gold price (in USD) vs. amount of negative-yielding debt (tr USD) – Source: Bloomberg, Eikon Reuters.

Gold

 

 

Great Chart: Gold vs. US 5Y Real Yield

We showed in many of our charts that 2017 was the year where some of the strong correlations between assets classes broke down. We showed USDJPY vs. TOPIX (here, here), Cable (here) and EURUSD (here) vs. the 2Y and 10Y interest rate differentials, and this week we chose to overlay Gold prices with 5Y US real interest rates. As we explained it in our study on Gold (here), the relationship between Gold and US [real] rates is easy to understand. The precious metal is a non interest-bearing asset, meaning that a typical investor doesn’t get any cash-flow from owning it (unlike dividends for stocks and coupons for bonds), and has usually a storage cost associated with it. Therefore, the forward curve of the ‘currency of the last resort’ (Jeffrey Currie) is usually upward sloping, in other words Gold market is in contango, with the forward price equal to the following:

Reg.PNG

Hence, if real interest rates start to rise, a rational investor would prefer to reallocate his wealth to either US Treasuries or Treasury Inflation Protected Securities (TIPS) and receive coupons rather than keeping a long position in a commodity that has a ‘negative carry’.

As you can see it on the chart, Gold prices (in US Dollars) and the 5Y TIPS real yield have shown some strong co-movements over the past 5 years, until the summer of 2017 when the two times series diverged. If we would follow recent moves on the market, the late surge in Gold prices (currently trading at 1,340 $/ounce) would imply a 50 to 60 bps decrease in US real interest rates (note that if we regress the change in Gold prices on the change in the 5Y real yield using weekly data since 2013, we find that a 1% increase in real yields lead to an 8.7% depreciation in Gold prices). And lower real rates would either come from higher inflation expectations or lower nominal interest rates. With the 5Y5Y forward inflation swap currently trading at 2.11% and up 30bps over the past 6 months, core inflation and core PCE YoY rates at 1.8% and 1.5% slightly moving to the upside, and oil prices still trending higher with WTI front month contract trading at $64.5, there is room for higher inflation prints coming ahead. However, if the two curves were to converge in the short term, the [sharp] move would come from either [lower] Gold prices or [lower] Treasury rates.

Our view is that the divergence will persist in the beginning of 2018, with inflation remaining steady / slightly increasing and US interest rates failing to break new highs on the long end of the curve (5Y and 10Y). The main reason for that is that we think market’s confidence on the Fed’s 4 or plus hikes will slow down in the coming months on the back of lower-than expected fundamental, depriving the yield curve from steepening too much.

Chart: Gold prices vs. US 5Y TIPS (inv.) (Source: Reuters Eikon) 

WeeklyGold.PNG

 

Studies on Gold and its relationship with other financial variables

Abstract: Define as the currency of the last resort, gold has historically been seen as the ultimate hedge against inflation. However, recent research has founded that the commodity provides a unique source of diversification to an investor’s portfolio. This study investigates the long-run relationship between gold and a set of financial variables based on daily data from January 1990 to June 2016, then use this relationship as a fair value and see what sort of interpretation we can do with the results.

Link ===> Gold Study

Excel data ===> LastGoldData

Gold: how far can the current trend go?

Since the beginning of the year, the commodity market has been regaining strength, and especially gold that has been up 23% since its mid-December low (slightly below 1,050 USD/ounce). As you can see it on the chart below, the recent spike in commodities can be explained by the dollar weakness we have seen over the past five months (DXY index in yellow line inverted vs. Gold in candlesticks). However, we are still convinced that Gold could continue to act as the ‘currency of the last resort’ (i.e. an insurance against the confidence on the monetary system) even if the US dollar is set to appreciate in the long term.

(Source: Bloomberg)

As gold is traded primarily in dollars, many studies have showed that a weaker dollar makes gold cheaper and increases the demand for gold, which in the end pushes the price of the commodity higher. Therefore, Gold and US dollar should be negatively correlated. If we use HS spread analysis function in Bloomberg, we can see that the 1-month (20 Business days) correlation between Gold and DXY index (using the US Dollar index as a proxy of the dollar even if it’s mainly weighed in Euros, pounds and Yen) has been negative for most of the time over the past five years. However, this correlation can sometimes break down and turn positive for a small period of time.

GoldHSDXY

(Source: Bloomberg)

The question now that we are asking ourselves is to know the positive correlation between US dollar and Gold can last longer than just a week or two.

The reason why we think Gold is set to appreciate in the long term is coming from a long fat tail risk list that gets very concerning. In it, we could find the following events:

  • Japanese crisis in the bond market
  • Banking crisis in China coming from a rise in NPLs and a housing market collapse
  • Corporate default rates soaring in the US high-yield market
  • European Banking crisis

If one of those ‘black swan’ events rises in terms of probability, we would then see a sort risk-aversion environment with more demand for safe haven assets, such as US Treasuries or US Dollars. At the moment, the 10-year and 30-year Treasury yields both trade at 1.74% and 2.57% respectively, and a sudden risk-off sentiment could push LT US yields close to zero.

Academic studies have shown that there exists a cointegrating relation between gold and US real interest rates. If we stick with the assumption that inflation will remain low (i.e. close to zero) in the medium term (2-year period) based on the market’s expectation and that Treasury yields start to crater ‘once again’, an interest for gold could be a good alternative.

Tactical view on XAUUSD

Based on the chart below, it looks like the 50 SMA (purple line) has been acting as a strong support, however the momentum could continue in the future. The next psychological level stands at 1,300 on the upside, any break out could lead towards 1,325 then 1,350. On the downside, we see a strong support zone between 1,220 and 1,250 and could be a good entry point for a long term investment. The risk is if the US Dollar starts to appreciate to quickly based on this week’s FOMC ‘hawkish’ minutes with the market now starting to price at least a couple of rate hikes for 2016. For those looking for a more ST investment, a good psychological support on the downside to set up your stop stands below 1,200.

TechAnalysisGold

(Source: Bloomberg)

Global Macro: trade on China’s weak signs and Draghi’s Will to Power

This article deals with a few current hot topics:

  • The main one gives an update on weakening signs of giant China
  • The second one reviews the ECB Thursday’s meeting, presented with a couple of FX positioning
  • The last one is on the debt ceiling debate and risk-off sentiment

China desperately flowing…

As I am looking at the current news in the market, there has been a lot of interesting topics to study over the past couple of months. I will first start this article with an update on China and its weakening economy. Since the Chinese ‘devaluation’ on August 11th, I have been focusing much more in the EM and Asian Market as I strongly believe that the developed world is not yet ready for a China & Co. slowdown. I heard an interesting analysis lately, which was sort of describing the assets that had performed since the PBoC action more than two months ago. As you can see it on the chart below, Gold prices (XAU spot) accelerated from 1,100 to a high of 1,185 reached on October 14th, and Bitcoin recovered from its low of 200 reached in late August and now trades at $285 a piece.

ChinaandBitcoinGold

(Source: Bloomberg)

One additional explanation that I have for Gold is that I believe that the 1,100 level could be an interesting floor for long-term investors interested in the currency of the last resort. The weak macro, loose monetary policy, low interest rates and more and more currency crisis in EM countries will tend to bring back gravity in Gold, especially if prices become interesting (below $1,100 per ounce) for long-term buyers.

Looking at the CSI 300 Index, we still stand quite far from the [lower] historical high of 5,380 reached in the beginning of June last year. Since then, as a response, we had a Chinese devaluation, the PBoC cutting the minimum home down payment for buyers in cities last month (September 30th) from 30% to 25% due to weak property investment, and then a few days ago the PBoC cutting the Reserve Requirement Ratio (RRR) for all banks by 50bps to 17.50% and its benchmark lending rate by 25bps to 4.35%. Looking at all these actions concerns me on the health of the Chinese economy; it looks very artificial and speculative. In a late article, Steve Keen, a professor in economics explained that the Chinese private-debt-to-GDP ratio surged from 100% during the Great financial crisis to over 180% in the beginning of 2015, amassing the largest buildup of bad debt in history. Its addiction to over expand rapidly have left more than one in five homes vacant in China’s urban areas according to the Survey and Research for China Household Finance. Banks are well too exposed to equities and the housing market, and it looks that they have now started a similar decline as the US before 2008 and Japan before 1991. To give you an idea, the real estate was estimated to be at 6% of US GDP at the peak in 2005, whereas it represents roughly 20% of China’s GDP today.

ChinaPrivatedebt

(Source: Forbes article, Why China Had to Crash)

I wrote an article back last September where I mentioned that the Chinese economy will tend to slow down more quickly than analyst expect, therefore impacting the overall economy. We saw that GDP slide to 6.9% QoQ in the third quarter, its slowest pace since 2009 and quite far from the 7.5%-8% projection in the beginning of this year.

Draghi’s Will To Power

One fascinating event this week was the ECB meeting on Thursday. Despite a status quo on its interest rate policy, leaving deposit rate at -0.2% and the MRO at 5bps, a few words from the ECB president drove immediately the market’s attention. He said exactly that ‘The degree of monetary policy accommodation will need to be re-examined at our December policy meeting’, therefore implying that the current 1.1 trillion-euro program will be increased. As you can see it on the chart, EURUSD reacted quite sharply, declining from 1.1330 to a low of 1.0990 on Friday’s trading session, and sending equities – Euro Stoxx 50 Index – to a two-month high above 3,400. Italy 2-year yield was negative that day (hard to believe that it was trading above 7.5% in the end of November 2011).

ECBmeeting

(Source: Bloomberg)

 I am always curious and excited to see how a particular currency will fluctuate in this kind of important events (central banking meeting usually). One thing that I learned so far is to never be exposed against a central bank’s desire; you have two options, either stay out of it or be part of the trend.  I think EURUSD could continue to push to lower levels in the coming days, with the market slowly ‘swallowing’ Draghi’s comment. I think that the 1.0880 level as a first target is an interesting level with an entry level slightly below 1.1100 (stop above 1.1160).

USDJPY broke out of its two-month 119 – 121 in the middle of October down to almost 118, where it was considered as a buy-on-dip opportunity. It then levitated by 3 figures to 121.50 in the past couple of weeks spurred by a loose PBoC and ECB. The upside looks quite capped in the medium term if we don’t hear any news coming from the BoJ. The upside move on USDJPY looks almost over, 121.75 – 122 could be the key resistance level there.

USDJPYTrade

(Source: Bloomberg)

Potential volatility and risk-off sentiment coming from the debt ceiling debate

On overall, with US equities – SP500 index – quietly approaching its 2,100 key psychological resistance with a VIX slowly decreasing towards its 12.50 – 13 bargain level, I will keep an eye on the debt ceiling current debate in the US, which could trigger some risk-off sentiment in the next couple of weeks (i.e cap equities and USDJPY on the upside). Briefly, the Congress has to agree on raising the debt limit to a new high of 19.6tr USD proposed (from 18.1tr USD where it currently stands). The debt limit is the total amount of money that the United States government is authorized to borrow to meet its existing obligations, and the current debt ceiling proposal’s deadline is November 3rd. No agreement would mean that the US government could default on its debt obligations, which could potentially increase the volatility in the market.

The chart below shows the increase of the debt ceiling since the early 1970s, after the Nixon Shock announcement which led to the end of Bretton Woods and the exponential expansion of credit.

USceiling

(Source: The Burning Platform) 

Gold: a response to more easing

Following my latest article on the Fed’s situation and a potential QE4 announcement next year if the situation deteriorates, I thought that a little article on gold could complete my overall view. As many other investors, I am trying to figure out where is the final bottom of the commodity. With all this currency debasement happening (and even more to come), I was wondering if agents will start to once again consider it as the ‘real money’ or – such as GS Jeffrey Currie calls it – the currency of the last resort.

The chart below shows the weekly prices of Gold since the late 90s; as you can see it, one ounce of Gold is now trading at 1,132 slightly above its 50% retracement (1,086.56) from a local low of 251.95 reached in August 1999 and a high of 1,921.17 reached in September 2011.

GOldhistory

(Source: Bloomberg) 

Even though many Gold experts are still bearish on the commodity forecasts with a first target at $1,050 per ounce, I am wondering if $1,100 is a good level to start buying as a long term investment. I understand that investors have considerably starting to lose interest as soon as they realized we were entering in a disinflationary-then-deflation area and that it was more interesting to be exposed to US bonds as real interest rates were increasing. As you know, Gold doesn’t distribute dividends or coupons (and also lacks the full faith and credit of most governments) and is only subject to capital appreciation. Hence, a good factor that can explain the majority of changes in gold prices over the past few years is indeed the changes in real rates.

However, if we considered the 2016 scenario of QE4 as a response to the EM meltdown, in addition to an all-in desperate Abe and Europe’s Great Depression, gold could potentially attract more and more buyers in this sophisticated period.

Quick review of Gold inventories figures

According to two main sources – Kitco and World Gold Council – there is 170,000 metric tons of ‘above-ground’ Gold (i.e. Gold that have been mined in all human history), which corresponds to approximately USD 6.8 trillion based on a spot value of 1,130 USD per troy ounce. If we look at the growth of the top central banks’ balance sheets over the past twenty years (see chart below), we can see than we have reached an historical high of more or less USD 16 trillion. Therefore, based on that information, we can easily do the math and conclude that the gold-to-monetary-base ratio stands now close to zero.

CBs

(Source: Bloomberg)

As you can notice on the chart above, we have now entered in a Central-Bank-money-printing area since the Great Financial Crisis and we are struggling to get out of it. As I described in my latest article, I believe that the Fed’s response to the EM crisis will be a QE4. Based on a statistical analysis, it is clear that this one will be less efficient that the previous ones; efficiency of QEs has a sort of logarithmic function until a point where there is no effect to the economy or even a negative effect to it. Therefore, new money into the system could trigger Gold prices to the upside as investors’ faith on central banks will be clearly reviewed on the downside.

Even though global annual gold mine production has risen to 3,000 tonnes in recent years (reported by the World Gold Council) compared to a 10-year production average of 2,700 tonnes, I don’t think it will add further pressure on the commodity price in the medium/long term. Especially now that we have reached a sort of unlimited-printing strategy. In addition, geopolitical pressures and macro conditions in some of the main producers (Australia, South Africa, Russia. see gold main producers in the map below) will slow and perhaps revert that trend in the coming quarters.

GoldProducers

(Source: World Gold Council)

To conclude, my view is that we could see a market’s response to gold as a sort of alternative currency to hold while we try to get out of this monetary debasement. The five-year chart clearly shows a negative trend, but I will try to add some gold in my portfolio at around 1,100 USD as a long term investment (and hedge).

GOldNow2

(Source: Bloomberg)