This is now my second article on metals in the last week. And, the main reason I have chosen to write recently is because there are just too many fallacies presented in the many other articles written about gold of late, which are relied upon as the basis of the analysis presented therein.
In my last article, I addressed the manipulation and inflation fallacies regarding gold, in addition to the confirmation bias which seems to be prevalent in the comments section all too frequently. In this week’s article, I am going to address the safe haven fallacy, the inverse-inflation argument, as well as the fallacy regarding the US Dollar.
Let’s start with the safe haven fallacy.
The last time we saw the occurrence of a major geopolitical event was when Russia invaded Ukraine. Yet, gold was already in a rally mode before it occurred, and was not too far from a top we were expecting at the time. So, even though gold did spike higher on the invasion, within two weeks thereafter it was lower than where it was before the invasion.
How can we explain this based upon the “safe haven” perspective? Did Russia suddenly pull out from Ukraine? Or, can we more reasonably assume that there really is no safe haven driver of gold? I know where I stand based upon the facts of history. In fact, you can see the same in just about every geo-political occurrence through the years. Gold has not diverted from the pattern that it was trading within before the event.
Moreover, major rallies begun in the metals market have not been triggered by geopolitical events. Just ask yourself if were there any geopolitical events which started the rally we saw in 2016 in the metals market? That rally took almost everyone by surprise, as most were extremely bearish of the metals at that time. Well, almost everyone.
On December 30, 2015, I penned the following message to those willing to listen:
“As we move into 2016, I believe there is a greater than 80% probability that we finally see a long term bottom formed in the metals and miners and the long term bull market resumes. Those that followed our advice in 2011, and moved out of this market for the correction we expected, are now moving back into this market as we approach the long term bottom. In 2011, before gold even topped, we set our ideal target for this correction in the $700-$1,000 region in gold. We are now reaching our ideal target region, and the pattern we have developed over the last 4 years is just about complete. . . For those interested in my advice, I would highly suggest you start moving back into this market with your long term money . . .”
But, I digress.
So, please spare me with the fallacies of gold being a “safe haven” during geopolitical events. History proves that this is not what drives gold. So, any articles that present an underlying premise based upon the safe haven argument should be summarily dismissed for lack of historical support or understanding of what drives gold.
What astounded me even more was an article reasoning that we should wait for inflation to dissipate before gold will rally. It seems that there are people that are surmising that since gold did not rally due to inflation, then it must mean that it will rally when inflation subsides. And, yes, I just shook my head.
Folks, for as long as I have been investing in gold (many decades), there have been arguments proffered that gold rallies during inflation, and an equal number of arguments that it rallies during deflation. And you know what history proves? Both arguments are wrong. If you look at historical periods of inflation, you will see there are times that gold will rally, and there are times that gold will fall. And, if you look at historical periods of deflation, you will see there are times that gold will rally, and there are times gold will fall.
So, what conclusion should you derive from any arguments focused upon inflation or deflation? You should ignore them because anyone that relies upon those drivers has no clue about how metals work, nor have they bothered to review the lessons of history.
Lastly, I have seen many arguments that claim that gold does not rally when the dollar is strong. And, because the dollar is strong right now, then gold will not rally. There are two main issues with this argument.
First, I am not going to provide to you a dissertation regarding the many historical periods of time where gold rallied alongside the dollar or dropped alongside the dollar. If you take the time to look, you will find it on your own. But, I will simply point out that the DXY (Dollar Index) is now just below its 20+ year highs, and so is gold.
Second, the crux of argument is based upon a linear expectation that the dollar will remain in the trend in which it currently is traveling. But, is that how markets work? Are markets really that linear? And, between you and me, I am seeing the DXY approaching a topping point, and will likely begin to drop towards the 96 region.
Now that we have addressed further fallacies in the metals market, I will explain to you why you should care about the metals market.
As an anecdotal side point, I have to note that the recent metals articles that I have written on Seeking Alpha has been quite poorly read. My articles on the stock market well exceed 10,000 reads every single well. Interestingly, when I used to write about metals years ago, those articles well exceeded 10,000 read every single week. Yet, my current articles see half, if not even less, the reads of those garnered by my general market articles. I think this presents us with anecdotal evidence that there is not much interest in the metals market. And, it supports our expectations of a bottoming in the market price, and our expectation that a major rally will likely take hold into 2024.
So, allow me to reiterate my expectation in the metals market. I believe we will see a very strong rally in the gold and silver markets as we move into 2024. And, my minimum target for the next gold rally is the $2,428 region. But, we often see very strong extensions during precious metals rallies, so depending on the size of those extension, we may even see as high as the $2,700 region before the next multi-year correction begins.
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