(This is an excerpt from an article I originally published on Seeking Alpha on March 8, 2014. Click here to read the entire piece.)
Friday’s U.S. employment report delivered strong results yet again. It helped increase expectations of a Fed rate hike by June as iShares 20+ Year Treasury Bond (TLT) and SPDR Gold Shares (GLD) both traded sharply lower.
Source for charts: FreeStockCharts.com
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I continue to like using the relative changes in Google trends on the search terms “buy gold” and “sell gold” as one measure of market sentiment. {snip}
I interpret these data to mean that gold is relatively unloved and even uninteresting to the general public/market. {snip}
As a gold bug, I am highly intrigued by the possibilities of buying gold as a contrarian. After all, my stubborn holding of gold for so many years has been partially based on an assumption that by the time an inflation threat looms its ugly head, gold will already be very expensive, and I will not be smart and/or quick enough to buy just ahead of event. Yet, despite this apparent disdain for gold, gold is still not cheap on a relative basis. {snip}
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Source for data: Yahoo! Finance and The World Gold Council
So no wonder buyers are still not breaking down the doors to buy gold.
There are other good reasons as well. Fundamentally, inflation is simply not a concern for anyone in most developed economies. Central banks are still fighting disinflationary forces and deflationist psychology, both lingering from the financial crisis. {snip}
The balance sheets of major central banks continue growing and growing, and meanwhile we gold bugs are astounded that gold is not double or more its current price. {snip}
Source: “Low Inflation in a World of Monetary Stimulus” by Reserve Bank of Australia (RBA) Deputy Governor Philip Lowe (March 5, 2015)
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Source: “Low Inflation in a World of Monetary Stimulus” by Reserve Bank of Australia (RBA) Deputy Governor Philip Lowe (March 5, 2015)
Of course, the market is also demonstrating its disbelief in the ability of central banks to hit their inflation targets. Lowe also shows how across the globe headline inflation is below many inflation targets across the globe.
Again, it seems like a sound contrarian move to buy gold exactly when no one thinks inflation will be a problem, but the devil is in the details and the timing. {snip}
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Be careful out there!
Full disclosure: long GLD, net long the U.S. dollar
(This is an excerpt from an article I originally published on Seeking Alpha on March 8, 2014. Click here to read the entire piece.)