All Roads Lead To Gold (And Silver…And Platinum)

By Greg Tolpigin | More Articles by Greg Tolpigin

After a long break in Europe (debatable whether it was deserved) I have returned to some new and in cases stronger revelations. Firstly, I have been a bond bull for a very long-time and in this column I even expressed the view that US Treasuries were the lowest risk, highest probability trade in global markets 18 months ago, 12 months ago and 6 months ago.

Under virtually all circumstances of global market developments in 2015 and 2016, they would appreciate. While I was gone US Treasury yields hit fresh new record lows as the 10-year yield in Germany, Japan and other countries moved into negative territory! 

I no longer see any value in bonds. This is not to say they are due for a collapse or the bubble is about to burst. Just the trade is over and now we all need to assess what the ramifications and are and what asset will now benefit.

The answer is gold and precious metals. After being a gold bear from 2012 to mid-2015 – as equities rallied and bonds did too why would anyone want to own gold? – I turned more positive in the mid to late 2015. Now I am a raging bull and I can see over coming days, weeks, months and years, gold following the trajectory bonds did over the past few years. One way – up!

My growing bullishness comes from several reasons. Firstly and most importantly, the technical picture is amazing on all timeframes, but I will get to that later. Second, as bond yields and yield curves continue to flatten as central banks and Governments continue to pump as much money as possible into the economy there is no return from owning any form of debt. We see very risky corporate debt (junk bonds) yielding ludicrously low returns. Money that would have poured into this space but no longer can because of the poor and even negative returns will begin to look to assets that have zero to positive returns. Think equities and think gold.

The upside of gold is that (like US Treasuries before) almost all circumstances will see it appreciate and these are by far my most favourite trades. The risk is low, the returns are consistent and the profits can be huge. So let’s run through some circumstances. We already discussed above that if the world maintains its current trajectory of lower and lower interest rates and quantitative easing, the appeal of gold increases. Its price is rising and it is a store of wealth.

Next, central banks are successfully in reflating the global economy and inflation rises sharply due to all the money printing and stimulus that has been generated in the past decade. Gold surges as it is an inflation hedge.

Central banks are unsuccessful in their attempts, the global economy falters and we see huge levels of corporate and sovereign failures, stock markets and real estate slump. Gold rallies on safe haven and security themes.

Also take into account that central banks around the world are racing to devalue their currencies as much as possible to help stimulate “relative” growth. Global central banks around the world (except Russia and China) have severely depleted their holdings in gold and hold huge amounts of currency reserves – which are all trying to be reduced in value. A switch to a more uniform, un-manipulated market such as gold would be significant for the price.

So gold here becomes the lowest risk, highest probability trade and if structured correctly will yield enormous returns (a combination of physical gold, financial instruments and gold producers). Include silver and platinum too.

Leading back to my point about the technical outlook for gold being the most important. Timing is everything. There have been gold bugs for many years, bullish from higher levels, having (and still) weathered huge losses and drawdowns. Our advantage is we haven’t and won’t. Gold is on the move.

The chart below is a weekly chart of gold and a huge base has been forming since early 2014 which is no different 2008 and 2009 consolidation. The current base is complete on a move through US$1395/1400 per ounce. Gold in other currency terms like Euro and Australian dollars looks even more attractive. The trend is strong, indicators healthy and the price action is respecting our key exponential moving averages – the purple, green and red lines.

We can also remove the notion right now, that gold can only rally when there is pain in stockmarkets. The biggest moves in gold below came in 2007 and in 2009-2011 – two of the best periods for stockmarkets. The reasons are based on those given earlier.

Silver (below) likewise is in the process of completing a multi-year base from which a strong trend will emerge to rival that of 2010. It is always encouraging when all markets in the same space can produce the same signals, patterns and outlook. It adds greater validity to the outlook. Silver up through $21 and focus starts to turn to levels above $30.

The size of the moves that precious metals can make will be dependent on which of the various global outcomes will unfold in the next 6 to 12 months and beyond. Either way gold is the best beneficiary of each of them.


Greg Tolpigin

About Greg Tolpigin

Greg Tolpigin has over 20 years of experience as a proprietary trader and high-level strategist for the major investment banks including Citigroup, Bankers Trust and Macquarie Bank.

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