If you are a current gold investor, you have to love the latest monthly statistics just published by the World Gold Council.
After years of a death by a thousand cuts inflicted by endless redemptions of gold ETF’s and ETN’s, August showed a sudden influx into the barbarous relic.
North American ETF’s led the charge, with some 28.8 metric tonnes valued at $1.3 billion pouring into the funds.
The SPDR Gold Shares (GLD) took in the most, 22.4 tonnes worth $1.03 billion, followed by the IShares Gold Trust (IAU), which added 4.6 tonnes worth $266 million.
Europe followed with 6.4 tonnes worth $321 million.
Asia was a net seller of 2 tonnes worth $80 million as investors pulled money out of precious metals and placed it in bitcoin, ethereum, and other cryptocurrencies.
Global gold-based ETF’s collectively hold 2,295 metric tonnes of gold and have picked up 143.5 tonnes so far this year.
For those used to using American measurements of precious metals, there are 32,150.7 troy ounces in one metric tonne.
The figures augur well for continued cash inflows and higher gold prices.
My experience is that sudden directional shifts of fund flows like this are NOT one offs. They continue for months, if not years.
Note that gold has outperformed the S&P 500 (SPY) this year for the first time in five years.
Of course, the trigger for these large inflows was the yellow metal’s decisive breakout on big volume from a two year trading range.
Not only did now longs pile into the market, there was frantic short covering as well.
Too many options traders had gotten comfortable selling short gold call options just above the $1,300 level.
Once key upside resistance was shattered, gold tacked on another $50 very quickly.
Bearish traders were smartly spanked.
Of course, I saw all of this setting up in early August, and piled followers into the largest gold positions since the inception of this letter a decade ago.
At one point, I was a very rare 40% long precious metals.
Every position, including Van Eck Vectors Gold Miners ETF (GDX), Barrick Gold (ABX), Newmont Mining (NEM), and Global X Silver Miners ETF (SIL), turned profitable.
There are five reasons why gold has gone off to the races.
1) Ten year Treasury bond yield broke down to a new 2017 low at 2.04%. This reduced the opportunity cost of holding gold to near zero.
2) Falling interest rates guarantee a weaker US dollar, another big pro gold development.
3) The Trump trade and the economic stimulus it promised has fallen to pieces.
4) Saber rattling from North Korea and constant missile launches aimed at the US has poured the fat on the fire.
5) General concerns about the increasing instability in Washington have driven nervous investors into EVERY flight to safety play.
Notice that the charts for gold and Treasury bonds are virtually identical this year.
That never happens, except in times like these.
Inflation has historically been the great driver of all hard asset prices. But it’s deflation that’s doing it now.
After such a meteoric move, I would expect gold to consolidate here around the $1,350 level for a while to digest the recent action. It may drift sideways, or fall slightly.
That’s when I’ll pick up my next basket of longs.
However, there is a sixth reason to own gold.
If fellow Marine Corp Captain, Special Prosecutor Robert Mueller, makes ANY public announcement, you could see a gigantic “RISK OFF” in all asset classes that takes gold up $50 in a heartbeat.
That could come in weeks, if not months, and will come totally out of the blue.
So don’t even THINK about getting too clever by adding some opportunistic short positions here.
Mueller’s move could come sooner than you think.
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