Trumpian Dystopia, USD Debasement, Impacts Gold and Silver

Gold Prices Rising 

In a not so long ago time of great economic upheavals and terrific financial angst, Gold, Silver and other precious metals had made an impressive upward move. The strides taken back then lasted almost 3 years; I am referring to the Summer/Fall of 2008 to the Gold peak in summer 2011. The Goombarh was present and was chronicling some of the investing options during to the precious metals rising. Perhaps in 2020, this long hot summer of mass political Trumpian discontent and creepy Covid torment, something is afoot again in the precious metals markets. See the rise in Gold prices since late 2018 to this week as depicted in the following 15 year Gold chart in USD. 

 Source: https://goldprice.org/spot-gold.html 

 After studying the above chart, and being a curious sort of fellah, the Goombarh immediately was scratching head and deducing about what were the initiating event(s) driver for these Gold price rises. He searched long and came up with the following chart of the US Fed funds rate. 

 Source: https://www.macrotrends.net/2015/fed-funds-rate-historical-chart 

The Fed Funds Rate Chart shows two things, the grey bars of the two recessionary periods, 2008 and 2020, and the debasement of interest rates (US Currency) to near zero by the blue chart line. The first rate drop in 2008 was the Obama era support for economic renewal. In the second instance of 2020, not only are the interest rates at next to nothing again( making holding the currency and property denominated in USD useless), but Trumpian political shenanigans have created a couple of Trillion of USD worth of ostensibly Covid support programs but which were mainly aimed at crediting themselves and their friends and allies with free US government money. 

 Gold Price Drivers 

So this time you have two drivers of Gold prices, one as a hard finite store of value (cannot be debased) as the USD is inflated by the creation of trillions in relief for business (read USD dropping). Also second, Gold is positioned to rise as currency interest rates are approaching zero (and some have gone negative). The subtle differential is that the USD would lose value (confidence) versus other currency (value holders) and the USD is being inflated by Trumpian currency creation out of thin air. 

 Gold Price Trend

 Source: Goombarh Superimposes Gold Price over Fed Funds Rate and Recessions 

From the above chart, It is a good macro picture, the Gold price rise is predated by the lowered Fed Funds rate due to their perception of recessionary times. Gold prices should rise as more people move into the metal during times of monetary stress as indicated by the recessionary periods. The two charts do fit well together and may indicate further rises for the Gold price are upcoming, as the recession is not yet over, all Trumpian antics aside, and the Covid effects may be with us for another year. So the trend for rising Gold prices should continue for a while longer. Taking a look at the longer term picture such as the 15 year charts above helps one definitely with perspective. A neophyte at chart reading could surmise from these two charts that the recent Gold price ascent could possibly continue for another year and a bit, similar to the 2008 – 2011 rise. 

After the main article was written Aug 4, 2020, on Aug 8, 2020, the Goombarh found this chart showing the US Budget deficit splurge as a huge contributor to the Gold price rise. 

 Source: Trey Reik, Bristol Gold Group LLC via Incakolanews https://incakolanews.blogspot.com/2020/08/read-trey-reik-on-gold.html 

Is this Valid, the Gold Price Rising? Good question, is the Gold Price Rise valid? If you are reading the financial news recently, you may notice that all of a sudden, the Silver price has exploded upwards. Gold has been moving higher for over one year, but Silver has just been dragging its foot for this period. Suddenly in July 2020, Silver explodes higher by an over 30% price increase as both actions are depicted in the following chart. 

 Source: https://www.macrotrends.net/1470/historical-silver-prices-100-year-chart 

The Goombarh takes the Silver price rise as a confirmation of the increasing prices for precious metal trend, that started way back in 2018. With the Silver price moving also, it is less risky an assessment for rising precious metals. It is also a more interesting investment proposition, as the Silver market is quite a bit smaller than the Gold market, and Silver has the potential for great gains (and also great falls). This will be investigated further in succeeding articles, stay tuned. 

Investment Takeaways 

1. With Gold prices rising and Silver prices exploding, what should one do? A savy investor would expose some portion of his/her portfolio to the precious metals to capture some of the possible gains. 

2. What investment vehicles are there? Rather than direct purchase of the precious metals, there are multiple ETFs with various exposures to the precious metals. GLD is the ticker for a Gold ETF - GLD is a relatively straightforward product; the underlying assets consist of Gold bullion stored in secure vaults. SLV is the ticker for a Silver ETF - that tracks the price performance of the underlying holdings in the London Silver Fix Price. 

 Since pre-covid, the GLD is up about 30%, but look at the explosive action in the SLV towards the end of July. The laggard Silver has suddenly taken the lead. This is what Goombarh postulates to be confirmation, that the precious metal bull is alive and is now on the run. 

3. What about the Miners? GDX is the ticker for an ETF of major Gold miners - NYSE Arca Gold Miners Index (GDMNTR), which is intended to track the overall performance of companies involved in the Gold mining industry. GDXJ is the ticker for an ETF of junior Gold miners - covers precious-metals-mining firms below the market-cap cutoff for GDX—the 'junior' mining firms. 

 Since pre-Covid, the GDX and GDXJ are both up about 60%, while the S&P500 has just recovered. SIL is the ticker for an ETF of major Silver miners - to provide investment results that correspond generally to the price and yield performance of the Solactive Global Silver Miners Total Return Index. SILj is the ticker for an ETF of junior Silver miners - the Fund seeks to provide investment results that correspond generally to the price and yield performance of the ISE Junior Silver Index. 

 Since pre-Covid, the SIL is up about 60% while the SILj is up about 55%. Note the high volume trading increase in late July give the explosive effect to the price rise. 

4. What about the individual mining companies? There are many good mining companies and many bad miners, and there is good analysis at other places. The Goombarh will also present some viewpoints upcoming. 

 I wrote this article myself, and it expresses my own opinions.