Regular readers know that I am a fan of gold as an investment but not a true-believer in the hyper-inflation trade.
To me, the gold trade here is very simple:
- We are in a bear market driven by concerns about sovereign default.
- If (when) Greece defaults, counter-parties (banks, investors, etc) will need to raise dollars for a variety of reasons.
- Assets such as stocks and gold, regardless of their “intrinsic value,” will be liquidated in exchange for dollars.
- At this time, governments and central banks appear to be too preoccupied with their own debt and inflation to provide enough supply to meet the coming dollar demand.
- Eventually, our debt problem will only be solved by default or inflation.
- In the event of default or inflation, hard assets (like gold) will rise in value.
After the recent run-up, gold is now approaching its 200 day moving average. Over the past few years – this has been a solid entry point into gold.
However, over the past few years we have been in a bull market and not a bear market. This is no longer the case.
As inflation policy shifts from its current stance (highly undesirable) to its future stance (the least horrible option) – gold will shift from an asset that must be liquidated to an asset that must be bought.
So, in other words, I am skeptical that gold will remain above its 200 day moving average right now – but it remains a long-term asset that must be owned.