Gold: The Best House in a Bad Neighborhood

Generally, when the mainstream talks about gold, you get a negative spin. So, whenever I see anybody in the mainstream talking positively about the yellow metal, I sit up and take notice. Well, MarketWatch had some positive things to say about gold recently, calling it “the best house in bad neighborhood” for 2019.

The article quotes a number of investment gurus who say 2019 could be a tough year for investors and gold may well glitter in the chaos.

First, we have a number of geopolitical situations brewing. Italy and the EU continue to lock horns over the Italian budget. The Brexit process is lurching along.  Germany just charted its worst economic growth numbers in six years. Then we have the ongoing trade war between the US and China. And as the MarketWatch article noted, some people out there in the mainstream are starting to get concerned about the Federal Reserve pushing up interest rates. Jefferies’ chief global equity strategist Sean Darby said, “Jerome Powell and co.’s intentions is the big thing keeping his clients up at night.”

MarketWatch said in its “Call of the Day” that “2019 will be a doozy for investors and advises they seek shelter in a much-neglected, glittering port.” It quoted Chris Weston, head of research at Pepperstone Group, saying that gold may well break out next year. He predicted a “capital preservation trade” that will boost safe-haven demand. The trigger? Rising US unemployment and a realization that the Fed has gone too far hiking rates.

Being long gold has been a tough investment since 2012, and so often, when we see the yellow metal gaining traction, the [US dollar] regains its mojo, and we see the inevitable reversal. However, as we look into our crystal ball and gaze into 2019, emerging warning signs can be seen that suggest 2019 could be the year where gold bulls finally get their day in the sun.”

Weston noted some of the same things Peter Schiff has been talking about in recent weeks, particularly some troubling signs in the housing market. He said investors have brushed off these “concerning data points” but when a cloud build over the “eternal sunshine” of the US labor market, they won’t be able to turn a blind eye any longer.

Risk aversion will take hold, with a rampant flattening of the US yield curve and a [dollar] flight will be in play. This is when gold works, especially when the position in gold futures has been significantly reduced.”

Although it’s interesting to see this kind of analysis out in the mainstream, most of the investment world doesn’t seem to get it yet. As Peter Schiff said in a recent podcast, most are playing checkers instead of chess. They don’t seem to grasp the significance of rising interest rates in an economy built on credit and debt. As Peter said, there is only one thing that can happen as rates climb.

The economy goes into recession. Right? There’s no other result that’s possible. Real estate prices go down. Stock market goes down. Wealth evaporates. And what is the Federal Reserve going to do in response to recession? It is going to cut rates. So, regardless of the rate hikes the Fed does initially, they are simply the overture to the rate cuts. The rate hikes sow the seeds of future cuts. And investors should be looking beyond the mountain to the valley of rate cuts that are coming.”

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