As many of you who follow my public articles likely know, I am an avid reader. And, from time to time, I will choose to read other public articles on various markets. I find it frustrating when articles use market fallacies to support their "analysis." Unfortunately, this is a common issue in the metals complex.
So, just the other day, I read an article that called for a major rally in gold primarily due to an expectation of China invading Taiwan. And, to just add a cherry on top, they noted that if that did not cause gold to rally, then it would rally due to it being a safe haven during market volatility/declines, due to inflation, due to the Fed lowering interest rates, due to central bank buying of gold, etc. In other words, they simply threw the kitchen sink of reasons as to why gold is going to rally in their eyes.
Folks, these are outright fallacious drivers of gold. All anyone has to do is simply do a bit of historical research and they would stumble upon the truth. Yet, too many choose to proffer these fallacies and peddle them as "analysis."
Ben Franklin once noted:
"So convenient a thing it is to be a reasonable creature, since it enables one to find or to make a reason for everything one has a mind to do."
So, if someone is bullish on gold, then simply note you are bullish on gold. But, please do not insult me by providing reasons that history has shown to be outright fallacies. Let's start with this ridiculous fallacy that gold is a safe haven during times of market declines/volatility.
Since I do not have to re-create the wheel regarding this issue, I am simply going to link to an article I wrote years ago, which outlines historical facts regarding gold's "safe haven" status. And, no, it has not proven to be the safe haven that analysts and the media continually parrot.
Let's now address the central bank buying fallacy. If one looks through history, we would see that the gold market has often (not always) topped when central banks were buying heavily and bottomed when central banks were large sellers. I know this sounds quite counterintuitive, but the facts are the facts. And, again, here is an article I wrote some time ago which outlines those facts.
Let's now discuss the common theme of gold being an inflation hedge. Well, we all know we had the highest inflationary pressures we have seen for many decades during 2022. Yet, did anyone care to even look how gold reacted during that time? Since gold declined for the great majority of 2022, I think it has shattered the inflation hedge fallacy for anyone who is being intellectually honest.
Now comes my favorite discussion: What happens when the Fed lowers interest rates?
Well, I am going to take you back in time for about a decade. And, if we remember, not only was the Fed lowering rates at the time, they were engaging in Quantitative Easing. And, everyone, along with their mother, grandmother, and grandmother's dog, were calling for gold to skyrocket during that Fed action. But is that what happened?
Well, again, I am sorry to use historical facts to burst your bubble. During that time, gold had already begun its decline towards the $1,000 region we were expecting to see, and the rate declines did not even phase it. Yes, the historical facts suggest that not only did gold, not rally while the Fed was lowering rates, but it was declining during that period of time.
Lastly, let's address this China/Taiwan issue. So, now I am going to challenge you all to do your own homework, as I am not going to spoon-feed this one to you. Go back and review many of the recent global issues we have seen over the last decade or two and see gold's reaction to those events. While most would assume that gold would consistently rise on these types of events, the historical facts paint a very different picture. So, good luck while you do your historical review.
At the end of the day, I am just so tired of seeing all these fallacies regurgitated time and again without even the slightest effort made to review or present the historical evidentiary facts. And, I sincerely hope you begin to become a more discerning investor rather than simply buying into fallacious arguments as to what will drive gold in the future.
Truth be told, I am not saying that gold will not rally should China invade Taiwan later this year. However, the reason for the rally will not be due to the Chinese invasion. Rather, it will be due to the fact that gold is approaching an extreme in near-term negative sentiment, which will cause it to turn in the opposite direction. It is just that simple.
And industry professionals such as Doug Eberhardt have expressed their views about how well we have used our methods to identify the turns in the market while we have ignored all these fallacies:
"I can attest to your accuracy on actually buying both gold and silver from us as close to the bottom as one could. . . Your timing on buying the dips is uncanny Avi! People should be aware of this . . . Avi has the magic touch. Listen to him."
Also, I want to give you a quick update on a silver article I wrote a number of months ago. I will note that my larger degree perspective has not changed in silver. I still think we are setting up for a potentially parabolic rally, which should continue over the coming year or two.
In my last article, I expected silver to hold the 22.50 region (in the futures) and begin a rally. But, the rally that we saw made me suggest to subscribers to lighten up on their positions or to hedge their positions as we were moving through the 25 region. As I explained to them in real time (before the current decline began), the structure was not confidently suggestive of a break out being set up and that another decline that could take us as deep as the 21 region had risen in probability.
As we now can see, the market took the more protracted pullback path, and it looks like silver can bottom out in the 21-22 region (September futures contract). It will likely be from this support region that the next rally can begin and set up the potentially parabolic move I am expecting as I look out toward 2024.
In the meantime, I am going to prognosticate that the catalyst for the next silver and gold rally will likely be an alien invasion. I mean, it could have a better track record as a catalyst than all the fallacies constantly being presented by analysts and the media!?