A Companion Update to this Year’s “In Gold We Trust” Report

Our good friends Ronnie Stoeferle and Mark Valek of Incrementum AG have just published a new chart book, which recaps and updates charts originally shown in this year’s 10th anniversary edition of the “In Gold We Trust” report and provides an overview of recent developments relevant to the gold market. The chart book can be downloaded in PDF form via the link at the end of this post.

 

Queen Elizabeth skeptically eyes what little is left of England's once sizable gold hoardQueen Elizabeth skeptically eyes what little is left of England’s once sizable gold hoard. Her mien seems to indicate regret. Well-known socialist financial guru Gordon Brown ordered the sale of half of the UK’s gold in 1999, at prices that had just reached 20 year lows. Not surprisingly, these prices have never been seen again. While he created a once-in-a-lifetime buying opportunity for the rest of the world, the Queen possibly suspects that regrets over this ill-conceived disposal could one day easily become a great deal more intense.

Photo credit: Getty Images

 

We show one of the updated charts below, namely the proprietary Incrementum inflation signal. The calculation of the signal is based exclusively on market-derived inputs. It tends to be far more sensitive to changes in inflation/ deflation pressures than many other gauges, which results in more timely responses to changes in these pressures. At present it clearly indicates that the environment for precious metals remains favorable.

 

1-incrementum-inflation-signalThe Incrementum Inflation Signal: current conditions are favorable for precious metals and other inflation-sensitive assets – click to enlarge.

 

The Big Bad Bear

Many well-known mainstream financial media seemed uncharacteristically silent about the 11 year long (and quite relentless) gold bull market from 1999-2011. Occasionally a disparaging remark was dropped, or a few sentences ascribed to Warren Buffett were quoted (something about Martians scratching their heads in wonderment when looking at gold hoards gathering dust in vaults on Earth). Compared to the rah-rah-rah that usually tends to accompany rising stock prices, gold’s rally almost had the air of a funeral.

If memory serves, most of Wall Street officially discovered the bull market around 2009 – 2010, not exactly an example of the most rapid or timely embrace of a strong uptrend either (there were a few notable exceptions). Quite a few WS houses only became truly enthusiastic about gold a few months before it peaked and remained that way for almost an entire year thereafter, a time period during which gold basically went nowhere – until it broke down, that is.

Over the past few years a lot of ink has been spilled on the bear market that started in late 2011 though. Around mid 2013, numerous authors writing for the above mentioned publications were suddenly kissed by the muse and discovered they had a great deal to say about the bear market in gold. Even endearing new terms for gold entered the lexicon (“pet rock”). Falling gold prices seemed to be a very effective antidote for writer’s bloc.

We have penned several missives on gold’s role as the J.R. Ewing of the investment world – it is essentially the asset they love to hate. There are of course very good reasons for this, many of which we have discussed in depth in “Gold and the Grave Dancers”.

That is not the point of the above though. We mainly want to remind readers of the unusual efforts expended between mid 2013 and late 2015 on producing a veritable flood of screeds proclaiming gold’s imminent demise. This backdrop serves as the mise-en-scène for the following table from the chart book, which shows the annual performance of gold since 2001 in terms of nine major currencies:

 

2-gold-performance-tableGold’s annual performance since 2001 in terms of nine major currencies. 2013 was indeed quite a bad year for gold; and to be sure, 2015 wasn’t much to write home about either. Other than that, gold’s average annual gain of 10.85% (in terms of all currencies combined) or 11.94% in USD terms, means it has vastly outperformed every other major asset class since 2001 – click to enlarge.

 

As you can see, there is a time for everything. Even including the massive correction of 2011 – 2015 (in USD; 2011 – 2013 in EUR), gold is beating the annualized returns of other major financial asset classes by a huge margin over the past 16 years.

 

Points of Departure

Naturally, there is no guarantee whatsoever that gold will resume its outperformance in coming years, but we believe the secular bull market still has some life left. In fact, long term bull markets in gold and commodities traditionally tend to deliver their greatest gains in the final rally phase (this is so because these assets are driven by fear rather than greed – and fear always produces price spikes).

The next chart illustrates the relative price performance of gold, the SPX and the 30 year t-bond since mid 1999. The yields of the latter two are not included in this comparison, i.e., on a total return basis they have done better than is shown here – but a huge performance gap would remain even so:

 

3-performance-comparison-chartPrice performance of gold, stocks and bonds since mid 1999. We’re not sure what the Martians would say to this, except maybe “we should have bought some” – click to enlarge.

 

Whether gold, stocks or bonds are the better investment obviously depends on one’s starting point, but it is worth noting that the one we have chosen above – the 19.5 year low in gold in 1999 – is never mentioned as a viable point of departure in the mainstream financial media. And yet, they will glibly parrot truisms like “buy low, sell high”.

A great many authors like to focus on gold’s manic spike high on January 21 1980, which obviously puts the metal’s subsequent performance in the worst possible light. This makes very little sense though, considering that the final 41% gain of that particular rally was produced in the span of just five trading days.

Obviously it was a very unique situation – indeed, it was a speculative blow-off driven by fears over the Soviet Union’s brazen invasion of Afghanistan on December 24 1979. On the eve of the invasion gold traded at $473 – a time at which its advance had already been egged on considerably by the Iranian revolution. It peaked exactly one month later at $850. A mere five trading days before the peak it traded at $603.

 

Conclusion

The Incrementum chart book attempts to help to answer the question whether gold remains an attractive investment. After all, it is no longer the bargain it was back in 1999-2001 – but that certainly doesn’t mean its secular advance is necessarily done. We think there is every reason to believe its best days are yet to come.

 

Download link: Incrementum Chart Book – 50 Slides for Gold Bulls (pdf)

 

Charts by: Incrementum, StockCharts

 

martianMeet Warren Buffett’s gold advisor. If you see him, hide the women and children.

Image credit: Tim Burton Productions

 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

One Response to “50 Slides for Gold Bulls – The New Incrementum Chart Book”

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • As the Madness Turns
      A Growing Gap The first quarter of 2019 is over and done.  But before we say good riddance.  Some reflection is in order.  To this we offer two discrete metrics.  Gross domestic product and government debt.   US nominal GDP vs total federal debt (in millions of USD) – government debt has exceeded  total economic output for the first time in Q4 2012 and since then its relative growth trajectory has increased – and it seems the gap is set to widen further....
  • A Trip Down Memory Lane – 1928-1929 vs. 2018-2019
      Boom Times Compared It has become abundantly clear by now that the late 2018 swoon was not yet the beginning of the end of the stock market bubble – at least not right away. While money supply growth continues to decelerate, the technical underpinnings of the rally from the late December low were actually quite strong – in particular, new highs in the cumulative NYSE A/D line indicate that it was broad-based.   Cumulative NYSE A/D line vs. SPX – normally the A/D line...
  • Long Term Stock Market Sentiment Remains as Lopsided as Ever 
      Investors are Oblivious to the Market's Downside Potential This is a brief update on a number of sentiment/positioning indicators we have frequently discussed in these pages in the past. In this missive our focus is exclusively on indicators that are of medium to long-term relevance to prospective stock market returns. Such indicators are not really useful for the purpose of market timing -  instead they are telling us something about the likely duration and severity of the bust that...
  • Debt Growth and Capital Consumption - Precious Metals Supply and Demand
      A Worrisome Trend If you read gold analysis much, you will come across two ideas. One, inflation so-called (rising consumer prices) is not only running much higher than the official statistic, but is about to really start skyrocketing. Two, buy gold because gold will hedge it. That is, the price of gold will go up as fast, or faster, than the price of gold.   CPI monthly since 1914, annualized rate of change. In recent years CPI was relatively tame despite a vast increase in the...
  • Unsolicited Advice to Fed Chair Powell
      Unsolicited Advice to Fed Chair Powell American businesses over the past decade have taken a most unsettling turn.  According to research from the Securities Industry and Financial Markets Association, as of November 2018, non-financial corporate debt has grown to more than $9.1 trillion [ed note: this number refers to securitized debt and business loans, other corporate liabilities would add an additional $11 trillion for a total of $20.5 trillion].   US non-financial corporate...
  • The Liquidity Drought Gets Worse
      Money Supply Growth Continues to Falter Ostensibly the stock market has rallied because the Fed promised to maintain an easy monetary policy. To be sure, interest rate hikes have been put on hold for the time being and the balance sheet contraction (a.k.a.“quantitative tightening”) will be terminated much earlier than originally envisaged. And yet, the year-on-year growth rate of the true broad money supply keeps declining noticeably.   The year-on-year growth rates of...
  • What Were They Thinking?
      Learning From Other People's Mistakes is Cheaper One benefit of hindsight is that it imparts a cheap superiority over the past blunders of others.  We certainly make more mistakes than we’d care to admit.  Why not look down our nose and acquire some lessons learned from the mistakes of others?   Bitcoin, weekly. The late 2017 peak is completely obvious in hindsight... [PT]   A simple record of the collective delusions from the past can be quickly garnered from...
  • The Gold-Silver Ratio Continues to Rise - Precious Metals Supply and Demand
      Is Silver Hard of Hearing? The price of gold inched down, but the price of silver footed down (if we may be permitted a little humor that may not make sense to metric system people). For the gold-silver ratio to be this high, it means one of two things. It could be that speculators are avoiding the monetary metals and metal stackers are depressed. Or that something is going on in the economy, to drive demand for the metals in different directions.   As a rule the gold silver...
  • The Effect of Earnings Season on Seasonal Price Patterns
      Earnings Lottery Shareholders are are probably asking themselves every quarter how the earnings of companies in their portfolios will turn out. Whether they will beat or miss analyst expectations often seems akin to a lottery.   The beatings will continue until morale improves... [PT]   However, what is not akin to a lottery are the seasonal trends of corporate earnings and stock prices. Thus breweries will usually report stronger quarterly earnings after the...
  • Bankrupting Coffee Shops - Precious Metals Supply and Demand
      Coffee, Milk and Gold Last week was holiday-shorted due to Good Friday (it’s not an official holiday in the US, but it is in the UK. And this week’s report is a day late due to Easter Monday). The price of gold dropped $15, but the price of silver rose ¢4. Perhaps silver traders got word that we are paying interest on silver, which gives people a reason to hold silver? J   A silver bar plus interest...  [PT]   The discussion in the opening essay [which can be...
  • Kashmir: The Constant Conflict
      Threats of Nuclear War On February 26, 2019, the Indian Air Force, for the first time since 1971, conducted a raid inside Pakistan, and allegedly hit a terrorist training camp, killing more than 250 terrorists. Pakistan showed photographs of damage to a tree or two. According to Pakistani officials, no one died and no infrastructure was damaged.   Mirage 2000 warplane of the Indian Air Force in medias res. [PT] Photo credit: hindustantimes.com   It is hard to...

Support Acting Man

Austrian Theory and Investment

j9TJzzN

The Review Insider

Archive

Dog Blow

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!