2018: The Wrong Lesson on Gold Investing

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Published : January 13th, 2018
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Category : Gold and Silver
Gold investing can wait 'til the crash. Right...?

SO EVERYONE thinks the stock market is about to pull back or even crash, but no one is doing a damn thing about it, writes Adrian Ash at BullionVault.

"Many clients we meet are fully invested bears," reports ever-bearish strategist Albert Edwards at SocGen, "nervously looking over their shoulder for signals of the next 'Great Unwind'.

"Fund managers think that stocks are overvalued," adds Business Insider, summarizing December's industry survey from Bank of America Merrill Lynch, "[yet] they continue to double down on stocks."

But why worry? Most asset managers working today lived through or worked in finance during the global financial crisis of a decade ago.

So they no doubt recall what worked then to rescue equity portfolios smashed by the banking crash.

Gold just kept on paying, no matter how late into the crisis you bought.

24hGold - 2018: The Wrong Less...

Watch your house catch fire, then buy insurance? Hey, it worked last time.

But as a rule to live by, that offers a very poor lesson.

And if you're expecting more of a Black Monday 1987-style slump in shares this year, you will want to be selling gold when stocks crash. Not buying.

Chart of gold prices vs. the US stockmarket's Nasdaq Composite, 1985-1990. Source: St.Louis Fed

So which is it for equities? Multi-year slump and recession...or short, sharp correction?

That's Part One of the question for gold investing at the start of 2018. Because as ever, the price of gold is all about what happens to other investments.

The metal itself won't change. Hell, the stuff does so little, it won't even rust. So to judge how much gold you need this year (or how little), you need instead to ask:
  1. Will global stock markets in 2018 stop going up?
  2. If so, how big will that drop prove?
  3. How will central banks respond?
Park any risks from geopolitics, mining supply or Asian consumer demand for the time being.

The only sure thing in 2018 is that the equity bull market will become the longest in US history if it gets to the end of the year.

So if a lull in equities before December turns into a slump, into a crash or into an all-out bear market, will the Fed blink or find religion?

Because the only thing that really counts for 2018 gold investing, alongside the outlook for equities, is what central banks do.

Tighter policy than pundits and traders expect should, all things equal, put a dent in any gold bull market. Looser policy than people forecast, in contrast, will only make gold more appealing.

This year's rally so far says weaker policy might be coming. The fact gold is rallying alongside fresh all-time stock market highs says that at least a few money managers are buying bullion as a precaution ahead of the equity drop everyone sees coming.
You can receive your first gram of Gold free by opening an account with Bullion Vault : Click here.
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Adrian Ash is head of research at BullionVault.com, the fastest growing gold bullion service online. Formerly head of editorial at Fleet Street Publications Ltd – the UK's leading publishers of investment advice for private investors – he is also City correspondent for The Daily Reckoning in London, and a regular contributor to MoneyWeek magazine.
WebsiteSubscribe to his services
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As you say, it's only what the central banks do that matters. Gold and its little brother silver are the only true measures of fiat currencies and for that they are abhorred by the money managers. And through the central banks' proxies, the bullion banks and TBTF banks, they will continue to control the price of physical gold bullion by manipulating the commodity markets' paper gold. They will fail only if a massive crash occurs where they cannot curb a surge in gold and silver demand. However, the catalyst for such a crash would have to be outside of the western central banks' control. I'd speculate that such a cause might come from the East and their huge stockpiles of gold and US debt. Guess we'll see what unfolds in 2018.
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As you say, it's only what the central banks do that matters. Gold and its little brother silver are the only true measures of fiat currencies and for that they are abhorred by the money managers. And through the central banks' proxies, the bullion banks  Read more
The Recusant - 1/14/2018 at 5:30 PM GMT
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