Monday , 17 June 2024

Short Gold! Really? (+2K Views)

So says Cliff Wachtel in edited excerpts from his original article* posted on seeking Alpha under the title The Only Reason To Short Gold.

 Lorimer Wilson, editor of (Your Key to Making Money!), may have further edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Wachtel goes on to say, in part:


…There is widespread confusion about what really drives gold and what kind of asset it really is. Below is the short version:

  1. Gold is neither a risk asset (an asset that rises in times of optimism about growth like stocks) nor safe haven asset (an asset that rises in times of the opposite sentiment). Rather it is primarily a currency hedge, which rises in times of concern about the long term value of the most widely held currencies like the USD and the EUR.
  1. A currency hedge is not the same thing as an inflation hedge (which gold is not). The concepts are related, and inflation is correlated to currency depreciation, but the two concepts are not the same. For example, over the past decade in which gold has rallied to new highs, inflation in the U.S. has been relatively low in the past decade, but the USD has steadily lost value relative to most major currencies.
  1. There are relatively brief periods when this rule doesn’t hold. For example in times of great market panic it tends to get dumped as markets flee into safe haven currencies.


Given the above understanding of gold, you want to be overall long gold when the currency to which most of your wealth is linked is at risk of debasement. Again, this article is meant to be a quick guide, so let’s just briefly consider the broad outlines of that risk.

The policy makers behind the USD and EUR, the two most widely held currencies, have indicated, in both word and deed, that they are ready to print money in virtually unlimited quantities for the foreseeable future in order to prevent recession or worse. They have not made material progress in curing the root causes of their economic woes, and so it’s reasonable to expect them to continue undermining these currencies. The solutions are known but politically impossible as long as the elected leaders continue to place a higher priority on retaining power than on imposing solutions that would be painful enough to get them voted out of office. [Read: World’s Largest Economies Have NO Choice But to Engage in Massive Money Printing – Here’s Why]

Policy makers behind the JPY and GBP are heading in the same direction for essentially the same reasons. They can’t cut back spending without imposing so much pain on their voters that alternatives to money printing are politically impossible at this time.

It’s not surprising then, that those in charge of the leading export economies and sovereign wealth funds are moving out of these currencies as quickly and quietly as they can (admittedly not so quickly or quietly given their size and need to avoid undermining both the value of their remaining holdings and exports).

Given that the above economies have yet to make meaningful progress of to solve their debt crises, this same long term fundamental demand for gold as a fiat currency hedge, and thus gold’s up trend, remains in place.


These are well known, so let’s just list some of the big ones:

  • Central banks continue to add to gold reserves.
  • The populations of China, India, and other higher growth areas continue to be gold buyers.
  • Per The World Gold Council, supplies of physical gold slightly exceed demand. In theory, there is many times this supply sitting in stocks and other equivalents. Much of how you view this data depends on how much you believe the stated physical supply figures are not materially overstated and that the paper equivalents will continue to accurately track the price of gold in times of exceptional demand. Suffice to say, there is reason to wonder. For example, while no one is making any public accusations, a number of nations, Germany among them, have felt a sudden need to audit their gold reserves held abroad. Were there a, ahem, material exception, do you really believe Germany would be quick to go public about it? Given the implications, would you, were you in their position? Just asking.

In summary, all of the fundamental drivers of gold’s decade-plus rally remain in place.


Gold’s long term chart reflects the above fundamentals. Looking at a weekly gold chart below of the past two years, it’s clear that gold’s long term uptrend remains intact. That’s not a trend to fight until it’s decisively broken. [Also read: What, Me Worry? Not When You Look at These Monthly Gold & Silver Charts and Goldrunner: Gold’s Extremely Bullish Backdrop Setting Stage for Run to $2,050, Then $2,400, Then $4,500 and Ultimately $10,000-12,000!]

ScreenHunter_03 Dec. 09 01.14

GOLD WEEKLY CHART JANUARY 2010 TO PRESENT (Source: MetaQuotes Software Corp,, 03 DEC)

In particular:

  1. The downtrend from that high was broken in August, and is still trending higher since then.
  1. Its pullback from its all time high in 2011 shows no sign of being anything but a normal technical pullback. As of this writing it’s down about 10%.
  1. It’s long term support zone, defined by the area bounded by its 20 week (yellow) and 50 week (red) EMAs continues to hold and trend higher.
  1. Strong support is around 1570, less than an 8% drop.


  • Short Term Traders

Like any asset, gold moves up and down within its overall long term trend. That very reachable 8% downside is plenty of room for short term traders who plan on opening and closing positions within a matter of weeks at most, based on a clearly defined set of technical criteria for determining short term strength or weakness, and you’re either monitoring your positions closely or have entered entry and exit limit orders in advance.


  • Anyone Who Doesn’t Fit The Above Criteria

In other words, unless gold decisively breaks strong support around 1570, you’re either holding current positions or buying on dips somewhere around 1600, depending on personal considerations. [Read: Now’s Your Time: Take Advantage of Market Trepidation, Act With Uncommon Confidence & Buy (Some) More Gold! and LAST CHANCE to Buy Gold/Silver/PM Stocks At Low Prices – BIG Moves Coming In December, January & February]


For those with significant exposure to currencies at risk of severe long term debasement, you need [to] cut your exposure to them as much as you can, and increase exposure to currencies (such as the CAD) and assets that will benefit from the decline of the USD, EUR, JPY and GBP, among others. Their coming decline is not some wild speculation. For example, it’s been a reality for those based in US dollars for decades. [Read: The USD Is Scraping the Bottom of the Barrel These Days for details.]

…[S]ome fine points to implementing the above…[are] for example:

  • The USD remains the safe haven of choice in times of great fear. These periods are likely to occur as long as the assorted debt crises in the developed world remain unresolved.
  • The preferred USD denominated or linked assets are those that are most resistant to loss of purchasing power as possible. The same holds for those needing to be liquid in EUR, JPY, or GPB.
  • Those seeking to build a reliable income passive income stream want to buy quality dividend stocks that pay you in the better managed currencies that will rise against those mentioned above, like the CAD.


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