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Tuesday, January 22nd, 2019 - Buy Gold - Bringing you trusted gold news and gold investing information since 2006

Trade the Underlying Theme Driving Gold, Not the Price of Gold

I find it remarkable how the price action of a security can change how traders view the outlook for that security. One example is gold. It has fallen some $100 over the last month or so and it has been met with a wave of bearish commentary on the outlook for gold. The big question to ask is has there been a fundamental change in the theme that has been driving gold higher over the last 12 months? There are perhaps a number of reasons as to why gold has gone up over the last 12 months. I guess the central one is inflationary fears. I prefer not too get too caught up in reasons. Rather, I look for inter-market behavior to identify the underlying theme driving a security.

Now it stands to reason that if gold is genuinely weak then there should be associated weakness in related or associated markets. Gold is a precious metal (currency) but it is also a “hard” asset, i.e. a commodity. In any event, if base metals (copper, Al, Tin, Zinc, Nickel etc), other precious metals (like silver, platinum, and palladium) and the broad commodity group were showing weakness then I would take the current weakness we are seeing in gold seriously. From the charts below it seems that base metals, other precious metals, and the broad commodity group are all making new highs daily (actually record highs in a number of cases).

The charts above continue to suggest a powerful bull market in commodities is underway and showing absolutely no sign of ending anytime soon. I think the big driver is inflation which is essentially the result of all the money printing that has occurred over the last two years. I find it absolutely bizarre how the investment community have not fully embraced the inflationary theme. Perhaps it is because gold and silver are showing some weakness!

To get an edge in trading you need to approach it in a very different manner than everyone else. I think the most gold traders would be better served watching the behavior of base metals and commodities in general to form their view on gold rather than the price action of gold itself.

Gold and silver are going higher, we are about to pay the price of the biggest money printing exercise in modern history.

Disclosure: I am long GDX.

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