Gold, Gold Stocks, and the End Game

We have seen the bottom in the gold market and gold stocks.

Evidence:

  • Examine the 30+ year chart of the monthly XAU (gold stock Index) to Gold ratio. You can see that the downtrend in the ratio has lasted about 20 years – since 1996.  The ratio is now at all-time lows in the form of a contracting triangle.  The triangle has been broken to the upside.

X-XAU_Gold_Mo

  • In the last 20 years gold has moved upward from under $300 to $1,100 per ounce yet the XAU index has not kept pace, as shown by the ratio dropping from about 0.35 down to 0.03.
  • Gold hit a multi-year low in December at about $1,045. As of February 11, about 1.5 months later gold prices have rallied off the lows by nearly $200 and gold has broken out to the upside.

X-Gold Weekly

  • The XAU to Gold ratio on a daily chart clearly shows a breakout to the upside. This indicates that the XAU is moving higher more rapidly than gold, a common indicator of gold market bottoms.  Expect higher gold prices and much higher XAU prices.

X-XAU_Gold-daily

  • Another important ratio is the Gold to S&P 500 Index. The following chart shows 30+ years of Gold/S&P ratio and clearly shows a declining ratio from 1980 to about 2001, and a climbing ratio from 2001 thereafter.  However, since 2011, the peak in gold prices, the ratio has collapsed back to 2007 levels.  The next major moves should be up in gold and down in the S&P.

X-Gold_SP

  • The gold to S&P ratio shows the broad trend of investor preference. From 1980 to 2001 investors shunned gold and wanted paper – stocks and bonds, so the ratio declined.  From 2001 to 2011 investors preferred gold and the ratio rose, but since 2011 bonds and stocks have moved higher and gold has fallen.  The ratio shows a declining triangle that usually resolves with an upward movement.  Expect higher gold prices and lower S&P prices.

A few questions:

  1. Would you prefer to own a bond that pays 6% per year guaranteed by a solid government with minimal debt, or gold which pays no interest and costs money to store it safely? Righto – most people would prefer the bond.  But those days are long gone!
  2. Would you prefer to own a bond that extracts negative interest from your principal every year, locks up your capital for five years, and is guaranteed by an insolvent government with massive debt, slowly growing revenues, and rapidly growing expenses – or gold? Righto – gold looks better and better in an era of insolvent governments, zero or negative interest rates, bail-ins, and increasingly expensive and pervasive global wars.
  3. It is pretty clear that:
  • Stocks (S&P, Dow, Nikkei, DAX, Shanghai etc.) are now in a period of declining prices, like 2008. (Look out below!)
  • Bonds are nearing the end of a multi-decade bull market and can only be repaid by governments issuing new debt. (Not sustainable.)
  • Gold and silver prices in the paper markets have been crushed for nearly five years and have recently broken out of declining triangle patterns. (Higher prices ahead!)
  • The gold stock index (XAU) has fallen hard for 20 years and hit its lowest price ever (since 1984) in January, even lower than in the year 2000 when gold was under $300 per ounce. The capitulation crash has occurred and higher prices are ahead.  (Finally!)
  • If investors can get 8% yield from a safe bond they are likely to choose that bond instead of gold. But today the yield is next to nothing, and even negative for over $5 Trillion in bonds, gold has bottomed and will rally substantially 2016 – 2020.  Eventually that realization will impact money managers, investors, and small investors.  The Chinese and Russians already understand it!

CONCLUSIONS:

  • Gold prices have bottomed. The XAU index of gold stocks has bottomed.

  • Central banks and politicians will talk, borrow, and spend but they will not save economies or protect your purchasing power. Gold and silver will protect your purchasing power and might help you sleep at night.
  • Gold stocks will rally and are excellent speculations.

 

Read what Bob Moriarty and James Flanagan have to say regarding a bottom in gold and the XAU here.  (Thanks for their insights.)

Read what Graham Summers has to say regarding “The End Game For Central Banks has Begun.

Read what Bill Holter has to say about “The Great Credit Unwind.

Read what Michael Snyder has to say about Global Economic Turmoil

 

Gold Thrives, Paper Dies!

Gary Christenson

The Deviant Investor

 

 

 

 

6 thoughts on “Gold, Gold Stocks, and the End Game

  1. Do you know what a naked short is? I don’t think you know what you are talking about. It is IMPOSSIBLE to have a naked short on gold. In order to sell short someone has to buy to offset the short. geez


    • Are you replying to some other website by mistake. I did not mention a “naked short” in this article.
      By the way, what people often refer to as a naked short is a short not backed by metal, just paper.

      Yes, of course, a futures long is offset with a short. Who would think you could have shorts without longs in the futures market? But it is often true that the shorts are selling paper and are not backed by actual metal.

      Regardless, what did that have to do with my article?
      thanks for reading the article.
      The Deviant Investor


  2. Nice to see this post Gary. You have been writing the practical truth for so long, and it seems the truth is finally turning the tables on the subterfuge. The ball is now in the money-changers’ court, and it remains to be seen what their next move will be. They have had a few years to position themselves for this evolution, and you can be sure they have seen it coming just as you have all along. If they took advantage of the historical low prices of miners and purchased large positions, then PMs should do well. Or they could have a whole different plan waiting to be implemented – just as they printed money and suspended GAAP during the last crisis, when nobody considered they would travel down that road.


  3. The market analyst who called Black
    Monday crash to the penny 12 hours before it happened
    expects a large naked short to take down PM today.


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