Gold has now fallen some 40% since it’s nominal high in 2011 and many people are thinking that the gold bull is over and it is time to get out. We at Barbarous Relic couldn’t disagree more.
It is clear that all the financial conditions which pushed gold up to over $1,900 an ounce are still very much in existence – if anything, things are worse.
So why is the price of gold falling? Well it seems that many of the weak hands that held gold were working purely on the assumption that the gold price was in direct correlation to the level of QE. When we had QE to infinity, these people were expecting gold price to infinity. Now that the Federal Reserve are making noises about tapering QE the weak hands reason for holding gold has evaporated.
Although we agree that previous QE increased the bullish argument for holding gold, it is not the only factor. It is true that increasing the number currency unit decreases the value of each one, which drives up the price of commodities in those currencies. That is one factor. The other factor, which is currently being ignored, is the actual stability of the currencies. We at the Barbarous Relic look at the western economy and the western financial markets and see a fundamentally unstable system. All major markets are the product of major intervention and the elephant in the room, OTC derivatives, makes the whole thing a house of cards.
For this reason, we see the current fall in price as a huge opportunity and we are aggressive buyers of this gold market.