Discussion Topic

Gold – Mine!!! Nah. Yours, Yours, Yours, Yours….

March 22, 2020

Much has been said around the unusual, disconnected and if you like contra-correlated sell off in Gold recently. Everyone knows given the surrounding conditions and market noise it should have been rallying (and rallying hard as a safe haven). It hasn’t been of course; in fact, it has been decimated. Most boffins give the same reason for this. In the equity market meltdown people needed to sell something to cover margins calls and although not wanting to sell gold (because of its safe haven role) it is a liquid asset and was easy to sell.

So that’s what happened. The stock market tanked, and at the same time instead of behaving normally, the Precious market tanked. As it dd many of us did battle with it. At least till you worked out it was a basket case and  despite being counter-intuitive  and the difficulty  of doing so.  you had to just shut your eyes and go with it.

The overall global situation has not got better, in fact it has worsened and will continue to do so for a while yet. Even if they discovered a cure let alone a vaccine for COVID19 tomorrow nothing can stop the slowdown. The economic damage is already done. So at least a recession (if it’s not already started) is coming. The stock market will stay soft and possibly go lower but Gold has arrived at a crossroad.

Here’s the problem now and it’s a massive one.  I said in an earlier post ironically the market sells gold to pay margins on dodgy equity positions and when that’s done needs to find a home for any balance, which will be gold. Sooner or later the market will realise this. I wonder though, if they have been selling gold to cover margins, that suggests they are not exiting the equity positions, they can’t do that forever. This means they are still long and wrong.  When does the penny drop? When do they simply sell equities and buy gold? Which as we know is what should have happened in the first place.

I suspect this is the next phase. The market realises they have fluffed it and should have just sold equities and bought gold in the first place and they simply fall on their sword and pull the trigger on that strategy.  Now, this may not be tomorrow, next week or heck who knows. This is my problem and is why timing is everything, we have to listen for the noise of the penny dropping.  Tink….