What About Gold?
While there seems to be agreement regarding gold’s drivers, there isn’t in where it is being taken.
“It has been a bull market since the lows were made in December of 2015,” Gartman says. “Each new interim high has been higher, each new interim low has been higher. That’s impressive, and you would have to say it’s a bull market. This correction we have had in September is nothing more that another interim correction in an ongoing bull market.”
Rogers owns gold and is looking to own more but not at these levels. “Gold will continue to correct and hopefully there will be a chance to buy gold again in 2018 or 2019. I’m keen to buy it, I just haven’t bought it for several years because I am still waiting for a better opportunity,” Rogers says. “It has been in a basing pattern for a while and a basing pattern can fluctuate up or fluctuate down. [The] North Korea situation, governments continue to print money, and there are plenty of things that make people turn to gold. I still expect a better opportunity down the road.”
“We are going to have a lot more currency turmoil, we are going to have economic turmoil, and the economic turmoil often leads to everything collapsing,” Rogers says. “You might recall that in 2008 the price of gold and silver went down a lot because people were dumping everything in sight. So what I expect will happen is turmoil will come, everything will go down including gold and silver but as it gets worse [there will be opportunity to buy gold].”
Azous points out that despite gold’s perceived strength in 2017, it has significantly underperformed copper, base metals, the S&P 500 and bitcoin. ”The question should not be what do you attribute gold’s strength to since mid-December 2016, but what do you attribute gold’s underperformance to?” he says.
For Azous, it is all about interest rates. “The rolling correlation of gold relative to real interest rates is at the highest point of this cycle. Therefore, tell me if real interest rates will go up or down and I will tell you the direction of the price of gold (see “Interest rates & gold,” above).”
The key to the talk of interest rates is the threat of inflation. You may recall that gold’s rally to its all-time high in 2011 was based on the fear central bank activity would lead to mammoth inflation. When that inflation did not materialize, gold entered a huge retracement.
“I think the central banks are going to try and keep inflation below 2%,” Gero says. “That is why the rate hikes are on target, and the more the Fed speaks including Yellen, [the more they] gives you the sense that they want to normalize but they are also concerned about inflationary winds.”