Our Entire Monetary System Depends on Trust in Governments, You Need to Own Physical Gold

Our Entire Monetary System Depends on Trust in Governments, You Need to Own Physical Gold

The financial markets have been on a roller-coaster ride ever since the results of the US election became known.

As the election results poured in last Tuesday evening (November 8), the gold price surged to its highest level in over five weeks to $1,336.20 per ounce, its biggest one day rally since Brexit.

The gold price lost some steam on Wednesday (November 9) in the aftermath of Donald Trump’s victory as the US president elect, and, on Friday around 85,000 gold futures contracts (over $10 billion )traded pushing the gold price down from $1260 to $1230 an ounce.

Gold prices ended the week sharply lower and have careened to a five-month low. Sell stop orders were triggered in the futures market when prices dropped below key support at the October low, to intensify the price downdraft. Gold prices are down more than $100.00 an ounce from the Wednesday spike high to $1,338.30, basis December gold on Come futures.

The general consensus heading into the election was that a Trump victory would spell doom for stocks and as Trump’s odds were increasing during the election the Dow Jones nose-dived by 800 points while gold prices surged by almost $50 an ounce. However, by the end of the day, the Dow had pared back all of its losses and ended in positive territory, while the gold price gave back some of its gains.

It was also interesting to see the huge swings in rate hike expectations throughout the session on Wednesday, which will likely be a key focus going forward given that the next meeting is one of the only major events remaining this year.

Even before the Trump win, the markets were anticipating a 25-basis-point hike in the cost of capital by the Federal Reserve at its December FOMC meeting. That possibility now stands at about 75%, according to Fed Funds futures. There’s also a growing likelihood of a faster pace of rate hikes in 2017, due chiefly to what the markets see as economic growth engineered by President Trump and the Republican Congress

There are various reasons which may explain this volatility. There is uncertainty surrounding how Trump’s win will affect the economy. The Federal Reserve’s decision on the interest-rate hike is coming in December. The stock market is wooing investors as it flirts with new all-time highs.

Since the price of gold peaked on July 6, it’s fallen by around 11% percent, but I think the current pullback in gold is an opportunity to climb onto a trend that has much further to run. Fearful gold speculators will sell into near-term price weakness. Smart gold investors will use the current weakness to enter the market or add to positions with an eye to long-term profits.

The price of gold could still continue to fall, of course, but the fundamentals that have been behind the precious metal’s rise in 2016 still lend support to the technical picture of gold.

Why you should own physical gold

I urge investors to remain committed to gold as the fundamentals have not changed.

The policy of negative interest rates (NIRP) is a failed experiment. By charging people to hold money in bank accounts, central banks hoped to encourage savers to put their money to work by buying things and investing in the economy. So far, this hasn’t worked, and in a world where investors must pay to keep their money in a bank account, precious metals are attractive by comparison – especially when prices look set to climb.

As I have stated countless of times, since 2008, the expansionary monetary policy of central banks, namely quantitative easing is making paper currency less valuable. Printing money dilutes the value of a country’s currency. No one knows where this ends but in the meantime, NIRP is causing distortions and bubbles in many global markets. Faced with minimal or negative interest on bank deposits, investors are chasing returns in markets around the world. This drives asset prices to levels that are unwarranted by underlying economics. The “free money” being printed by central banks is inflating market bubbles in many equity and real estate markets. When bubbles pop, gold will be one of the safest places to hide, and its value as an alternative currency is likely to increase.

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