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Media Pumping Gold Before Correction?

For centuries, educated investors have made great returns off of the uneducated investor. Educated investors can even make a lot of money off of other educated investors. Even if you are educated, it doesn’t mean your returns will be very good (gold). Although educated investors are knowledgeable, it doesn’t mean they understand the crony capitalism that happens around them. Newspaper headlines, investor periodicals, TV, and other mainstream ideas can lead to slaughter. One of the most famous examples is Sir Isaac Newton. Many know of his mathematical brilliance and visionary prowess, but investing was not always kind to him. One famous example was an investment he made in the stock of the South Sea Company. He owned £3,500 of the shares in 1720 and he watched the irrational behavior of humans bid his overall value to £7,000. Seeing 100% profit, he sold the shares

Newton Paradox

Several months later, Newton jumped back in at a higher price and lost £20,000. Investing is as much psychology as it is being educated. Bubbles attract the educated because the uneducated move prices higher than any educated person could fathom. It happened 300 years ago and it still happens today. Feeling motivated, the educated person thinks profiting off of a short-term move higher is certain. The trade is made and then the position moves in the wrong direction. Thinking that the price will come back, the investor waits and the losses become greater. At that point, the exit of all investors becomes the same. Our world is difficult because there are so many interventions controlled by the top and it seems that no one knows what is worth throwing money at.

Financial Media Bullish On Gold

Central bankers know when to crash the party and extract from every unsuspecting peasant until we all feel like Sir Isaac. That’s what it seems like when watching CNBC or Bloomberg. Gold has had a great start to the year. It seems that all stories and analyses of how well it is doing came out after it had a stellar run.  Cramer was out saying to buy gold and Goldman Sachs has a report out saying we will have $1,450 gold by the end of 2019.

Propaganda spewed from these institutions comes at opportune times. It seems like they are adding to their COMEX digital playground to herd the crowd in before slaughter. Gold has been beaten down for years and a rebound seems likely, but after this long rally, it doesn’t seem like this is the time. Seeing headlines from Barron’s, Bloomberg, CNBC, Wall Street Journal, Yahoo Finance, and the Financial Times, it really makes me wonder.

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Trying to get retail investors to use GLD to hedge against inflation from protectionist policies seems like an old playbook. The Great Depression saw times like what we see now. Back then, tariffs, war, and protectionism led to inflationary pressures from increased demand on goods. For these reasons and continued fiat destruction, I’m a long-term believer in gold. It’s the rapid headlines of gold appreciation and the Commitment of Traders reports showing speculators are acquiring more paper and more futures contracts. We see Europe struggling, evidenced by the events in France and the ECB capitulating, along with the Fed. We see that negative interest rates in Europe have fully exacerbated the problem. Negative interest rate policy has made inequality in Europe even worse. Quantitative easing has widened the gap between the haves and have-nots in America. We are at inequality ratios that haven’t been seen since the Great Depression.

Policy Soothsayers?

This week, the Federal Reserve Board of San Francisco released a report explaining how going to negative interest rate policy would have gotten us out of the great financial crisis faster. This is utter nonsense being ushered in by academics looking at models that mean nothing. If they think negative rates would help aggregate demand, they are clueless. What this is telling us is that they are going negative in the next crisis. Holding cash in the bank makes even less sense than before. Releasing this report in the midst of a slowdown is a warning shot before the actual event. Keep in mind that owning gold that yields 0% is still greater than a negative percent plus inflation. This may be one additional factor pushing gold to the critical $1,400 to $1,450 price range we need to hit to get back to new all-time highs.

Cheers,

Colin

 

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