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Relative Dollar Strength Has Disguised Quite a Powerful Bull Market for Gold

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Gold is on a nice little bull run. The yellow metal is up almost 3% since the first of the year and nearly 13% since touching one-and-a-half year lows last summer. But as a recent article in Barron’s pointed out, the relative strength of the dollar has disguised an even more substantive bull market for gold.

Sharps Pixley CEO Ross Norman told Barron’s that gold has seen a widespread, strong and sustained value appreciation around the globe against 72 currencies.

 Using the dollar gold price, as most of us do, has disguised what is actually quite a powerful bull market.”

Norman noted that gold’s strength is extremely broad-based, rising against currencies from both developed countries such as Canada, Australia and Japan, as well as emerging markets including Brazil, India and Iran.

Kitko’s Peter Hug made a similar point during the Ultimate Gold Panel at the Vancouver Resource Investment Conference.

What people fail to see is that if you looked at gold in 2009 and compared it January of 2009  in Canadian dollar terms in January 2019 in Canadian dollar terms, you would have received a 7% annualized return every year, in gold, but nobody looks at that. So, that’s not a bad investment.”

During the same panel discussion, Peter Schiff also pointed out a much longer bullish trend in gold – even in dollar terms – saying that the recent rise in the price of gold over the last several months isn’t a “new” bull market, but rather a continuation of a secular bull market that started at the beginning of the millennium.

Remember, we started the millennium when gold was under $300. So, the real secular bear market went from 1980 to 2000, when gold went from $800 down to 250, 260, whatever the bottom was. But we had a very good run where gold went up to close to $1,900 and people always want to compare where we are now to where we were then and think, well, gold’s going down. No. It’s not. I mean, gold’s gone up over the last 19 years from under 300 to almost 1300.”

Inigo Fraser-Jenkins of Bernstein told Barron’s he thinks the bullish trend could continue, saying that with expensive stock valuations, rising geopolitical tension, and an imbalance in supply and demand, gold could be an attractive investment choice for the decade ahead.

The Barron’s article mentioned the potential for dollar inflation through additional capital in the market due to the ever-increasing national debt. Sprott Inc. CEO Peter Grosskopf also brought up government debt in a recent interview with Kitco News.

It’s only a matter of time before general investors see gold as a necessity. Gold will become a more fungible global currency as consumers lose confidence in the fiat system.”

He noted that central banks globally will find it impossible to raise interest rates due to all of the debt.

Mathematically, raising interest rates with record debt levels don’t work. The basic financial equation is broken and we see gold as an important hedge.”

Barron’s also pointed out the trend toward lower gold production. Gold mine output was up slightly in 2018, but it continues to show signs of slowing. Fraser-Jenkins said he didn’t see that trend reversing in the near future.

At current levels of capex and price, gold reserves will continue to be under pressure. Production of gold (depletion) will remain greater than reserve additions.”

As Roy Sebag pointed out during the Ultimate Gold Panel, when we compare gold to dollars, we’re really looking at things the wrong way.

I come from the school of thought that gold is money, which means there is only one kind of money, the money that’s endowed by nature, and that’s gold … things rot and evaporate and tarnish, but then there’s this thing that for whatever reason, called gold, is the rarest and lasts forever, and that’s what money is. Money is the baseline for all economic cooperation.”

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