Spotlight Weekly – What’s Up with Gold?
The Federal Reserve Bank met this week and agreed to hold interest rates steady again
| It’s the world’s largest mining conference and old home week for me. To be honest, I went this year with low expectations. The rumors leading up to the show said it would be low energy. More like a wake than a conference. However, something crazy happened in the lead up to the conference this month. The gold price went on a multi-day run. It broke its all-time high price on consecutive days. |
The S&P 500 rose 20% since it bottomed out in late October. Since Halloween, investors reacted as if there is no longer any risk of recession.
I have to tell you, this makes me increasingly nervous. This kind of move higher is so extreme, we will see traders begin to take profits. But there’s another piece of information that concerns me as well.
The gold price is also setting all-time highs practically every day, lately. You can see what I mean in the chart below:
This kind of move higher in gold indicates that governments are buying large amounts of gold. When a government buys gold, they must sell paper currencies (dollars, euros, remnimbi, etc). That means there is a general mistrust of paper currencies right now.
Usually, economists move to gold when there is a high risk of inflation. That’s because inflation devalues paper currencies, which drives the price of gold (and other tangible assets) higher.
That means we have competing indicators. In the short term, the stock market is ripping higher. But it appears that gold is letting us know we may be in for rough times ahead.
Let’s keep racking up profits in the market, but watch your trailing stops.
For the Good,
The Mangrove Investor Team
