I don’t mean the meaning of life, the universe and everything. I mean why are we in the gold market?
This week and especially today, I have seen so many emails, messages, and articles with the same theme.
“Woe is me.”
Seriously? The price of gold dropped $100 in a couple of months, and it’s like the end of the world.
If you really feel this way, we respectfully suggest you take a step back. Ask yourself why you’re in this market. We can think of four reasons:
1) You are a professional, an asset manager or on a trading desk. In this case, our advice may not apply to you.
2) You are speculating for bucks. With leverage. You may want to decrease leverage, or at least become more conservative about when to take big positions.
3) You are accumulating a position in metal, held outside the banking system, unleveraged. You should be happy that your paycheck goes father now and buys more gold!
4) You have gold as a hedge and/or to prepare for a monetary crisis. A falling price should take some of the pressure off. Gold will not be cheap when the real monetary fireworks go off.
We have one thing to add today. The market made a new milestone. Last week, the October gold contract plunged into backwardation (where it remains). Today, the December contract tipped in.
Scarcity is rising. Three contracts are now in backwardation, and the farthest is about 94 trading days (by our quick guesstimate) before December. This is interesting, and we haven’t seen anything like this since (as we recall) two years ago.
This is not a recommendation to go buy gold, and definitely not with leverage. This is an advisory and a situation that bears close monitoring.