Gold is trading around $2040 in a powerful rally over the past few weeks. This is only a percent or so from a new all time high. From our congenitally glass-half-empty point of view however, it would be a new all time low for the US dollar, now worth less than 1/2000 ounce of gold.
That’s more than our gloomy disposition talking, though. After all, gold hasn’t changed in about thirteen billion years. We can hardly make a similar claim for dollars. And when gold prices reach all time highs is decidedly not an objective reality, but rather depends on which pricing unit you choose. Gold price movements are markedly different if you’re doing your accounting in euros, pounds, yen or what have you. It’s a safe bet that it’s already been hitting records in terms of Argentinian pesos.
Not that gold itself is somehow supernaturally fixed in value. It lost value over the last two decades of the twentieth century, even against dollars, yet few would claim dollars themselves gained in value. Rather the durability of its value is most evident over long periods of time … as man-made assets wax and wane in trust, gold wanes and waxes as humans have lesser or greater need for its utility as an trustworthy store of value.
No doubt a decline in confidence in man-made money in general and the US dollar in particular is at work in 2023. The USD has been declining even in terms of other currencies. Its issuer, the Federal Reserve, is under enormous pressure to relent in its efforts to support its value, and the bond market has already been cutting interest rates for months. It has been falling from favor in international trade, as shown by the recent agreement between China and Brazil to sidestep it as a trading medium. This is a result of not only monetary policy but the brazen weaponization of the dollar in an attempt to punish Russia. Many national governments have to be looking at this and wanting to distance themselves from one day being on the receiving end of the same. The exorbitant privilege is finite and is being used up.
What next? Synthetic Systems had projected gold strength a couple quarters ago, which has so far has been the most successful of its recent forecasts. It’s also receiving a tailwind from a rally in Treasury prices, one of the more highly correlated with gold. Bonds are its main competition in the securities markets, and as investors perceptions of prospective real yields decline, gold appears more attractive.
The short term is better left to traditional technical analysis, and even that is nearly a crap shoot, and I don’t pretend to have special insight there. We do know though that as bonds grow more expensive and yield less, stocks are far from great values themselves, as I’ve argued elsewhere. This leaves currencies and commodities. Gold is both … the most predominantly monetary of the elementary commodities.