The Case for Gold
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PLEASE NOTE THAT THIS INFORMATION EXPRESSES THE VIEWS AND OPINIONS OF SEABRIDGE GOLD MANAGEMENT AND IS NOT INTENDED AS INVESTMENT ADVICE. SEABRIDGE GOLD IS NOT LICENSED AS AN INVESTMENT ADVISOR.
Moving Towards a Reset
Gold is the ultimate safe haven, for two simple reasons. First, its total above ground supply only grows 1.4% per year, no matter what anyone does (and even this rate of increase is starting to fall as production levels have peaked). Second, gold is final settlement for the payment of obligations; it is universally accepted as itself, in physical form, not needing to be translated into someone else's currency.
Looking for a Turn in Gold
For nearly four months now, gold has been pressured lower by a rising dollar; the inverse correlation has been almost exact. Gold has dropped 5.2% from its January 25, 2018 close of $1362 to its May 16 close of $1291.50. Meanwhile, the US dollar index has risen 5.4% from this year's low close of 88.50 on February 15, 2018 to its close on May 16 at 93.26. In the past few days, shorts have jumped in to press their luck, judging from the increase in CME open interest while the price is falling.
Looking Bullish for Gold
It now appears that the gold complex has successfully tested support. Gold held above $1305, the low for the year set on March 5 and above the psychologically important level of $1300. GDX, the gold stock ETF, held above the December 2017 low of $21.25. No new lows support the potential for an upturn. Gold closed up $33 for the week at $1349.90, well above its 50 day moving average at $1331.
Gold Bull Market in Waiting
Where is the gold bull market that we predicted would begin about now? Here is our broad-based overview. The financial markets continue to expect an aggressive Fed going forward with four — even five — rate hikes this year and a continuing shrinkage of its balance sheet (Quantitative Tightening). Given this, gold has held up pretty well, essentially range trading, but the gold stocks have suffered because they are leveraged calls on gold that only 'work' with expectations of a rising gold price
For Gold, It's Goldilocks Inflation
Inflation is good for gold? It depends. If inflation provokes a hawkish Fed to raise rates faster than inflation, not so much. But if the Fed is worried about the stock and bond markets and therefore won't raise rates fast enough to keep pace with inflation, that's good for gold. And that's where we seem to be now.
Bubble Watching
As we have noted here before, we believe that financial markets have generated the biggest bubble in history. There are many supporting facts for this view, from extreme measures of market sentiment to prolonged record low volatility, unprecedented low interest rates, record levels of leverage and historic over-valuation.
Gold on the Move
Since bottoming on December 11, 2017 at $1242, gold has tacked on nearly $100 to its price. What's going on?
Getting Bullish on Gold
Gold is up nine of the last 12 Januaries with an average gain of over 4% and the trend has continued in 2018 with gold reaching an intraday high of $1327 so far this year. From December 19 of last year, gold rose 10 trading days in a row. Is this another rally destined to disappoint investors or the resumption of the gold bull market?
The Big Picture for Gold
This is a very frustrating period for gold investors. Global financial and geopolitical risks appear to be very high but gold has not responded. Gold and gold stocks are range-trading and have been since early March of this year. Gold is in a roughly $150 range (about 15%) while the HUI, a gold stock index, is in a 60 point range (about 30%).
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