The intro to The IKN Weekly IKN412 out Sunday evening had an unusual direction, as your non-goldbug author moved to bullish on the price of gold. Here we are, two days later and gold has broken away from its 1250 anchor. Just lucky i guess...
Gold still lacks US buyers and that’s not a bad thing (from IKN412)We like war! We’re a war like people. We like warbecause we’re good at it. Do you know why we’regood at it? Because we get a lot of practice.George Carlin, 1992I wrote on this subject at the start of last week’s edition and also stuck something on the blog last week, but there’s more to say about the way in which gold is being ignored by the self-appointed Smartest Guys In The Room over on Wall St. We have noticed the way in which gold bullion inventories at GLD, the financial jocks’ preferred method of playing the gold market, have done little else but flat-line over the last few weeks. GLD inventories have been in a tight, 830 metric tonne (mt) to 840mt range for a full month except for one day when they dropped to 825mt and that shows up in the first chart you see below.
But as you also see, I’ve highlighted another time in which GLD holdings did very little recently, the block of time just before and after the Trump inauguration, even though the holdings at that point were rather lower at around the 800mt mark. Why that period interests me is in the second of the chart, that’s the ratio chart I like the GLD inventory/price ratio and the two red boxed periods show when the ratio has traded at the 7.0X level. As scribbled directly on the chart there, the tentative theory is that it denotes a period in which gold gets ignored by the flash financial jocks, bullion goes out of fashion and the higher-speed big money looks for somewhere else to park. And once that’s understood, the implication is clear; these are good times to think about gold because when Wall St comes back to the gold market and starts to buy, it becomes a new cycle of interest for the price and the metal. Once fashionable Gordon Gekko buyers return the ratio goes up (because GLD isn’t the only buyer of gold out there) but so does the price and it’s typical to see the gold price pop jump higher after a sustained period of GLD inaction (e.g. the 4.5% rise in just eight days after the quiet period that ended early February). With gold now nearly at 2017 high close on Friday, even after the pop and drop it got on the Syria/US Jobs news and failure on Friday, it’s not going to take an extra catalyst to get gold up and over at U$1,300/oz any longer. Less than four percent’s worth of move, in fact.So yes, no matter if I’m mocked as A. N. Other goldbug I’ll say it clearly, I’m more bullish about gold’s prospects this weekend than for a while and not because those few showman-type bombs, a measured dose for public flag-waving consumption dropped on some strategically chosen airstrip which now let all sides say things how right they are without anything changing much (at this point I’ll add that although I’m no Trump fan, he should be congratulated for replacing that dubious Flynn guy with the morally upright and undoubtedly smart H.R. McMaster as National Security Adviser, there’s “smart strategy” written all over last week’s action). Do NOT be bullish on gold for geopolitical events and repeat the mantra with me:Geopoliticals have no long-term effect on gold.Geopoliticals have no long-term effect on gold.Geopoliticals have no long-term effect on gold.They might have done before, but the information highway and fly-attention-span news cycle first brought the half-life down to days, now it’s barely more than hours. Remember the very last scene in Peter Weir’s somewhat flawed but still darned wonderful ‘The Truman Show’? The two security guards? Literally the last seconds of the movie? Welcome to 2017. No madam and no sir it’s not the Tomahawks and its not CNN’s shrill, hand-wringing or Fox’s flag-wrapped coverage, it’s the economy stupid because gold has quietly slipped away from its TIPS ratio anchor (that’s still in the ‘New Normal range’) and may be ready to run. My best guess (and it’s only that, a guess) is the holding pattern period is coming to an end so call me a goldbug, I don’t care. To da moon, Alice! Audit Fort Knox! Live Free Or Die!