Gold long-term bull run is far from over

After I posted my last blog, expecting for a short term rebound of gold, there are some discussions about whether or not gold (same for precious metals in general) can still move up during the current deflationary situation. With respect to the factors that may impact on the prices of gold, I talked about them 5 years ago, which are still relevant. But these are more of those which may have short-term impact on gold. The real reasons that will support gold to resume its super bull run are the following two, in my opinion:

Currency war: each country is aiming to debasing their own currency, the cheaper the better. Although the US$ is in a short-term significantly strengthening against other currencies, which has a very negative impact on the gold price, however, long term US$ will still lose its value. But regardless, due to the next reason below, gold can still fly high during the time US$ is relatively strong. History has proved that if you know the historical gold bull runs in the past.

Negative real interests: I talked about this for Euro zone before but this is really a general phenomenon prevailing everywhere in the world that interest incomes people can earn from their saved the money are virtually less than actual inflation rates.  Of course, I’m not talking about the CPI that the governments want you to believe, but the actual purchasing power of your money. Do you really feel that your purchasing power has increased over years even when the governmental CPI has been kept very low? I guess the vast majority, if not all, would agree with me to say that overall the cost of living has been substantially increasing year after year. Some time ago, a friend sent me something interesting about the declining dollar purchasing power, a situation in CA, which is of course not limited to one state, but everywhere in the US and around the world:  " While the dollar's purchasing power has decreased over the past 16 years by 70%, gold has maintained its purchasing power. In 1999, it took 0.00667 ounces of gold to buy a dozen eggs. Today, despite the new regulations, you can buy a dozen eggs for just 0.00583 ounces of gold. If you look at the purchasing power of gold in terms of gasoline, bacon, filet mignon, or real estate, you'll find the same thing. An ounce of gold buys at least the same amount of everything as it did in 1999”. You see, governments can't print gold. It has been used as money for thousands of years. While we may feel more of the risk of deflation at the moment, the gigantic amount of paper money the governments around the world have created from the thin air will sooner or later find its way into the circulation  and when it happens, watch for the super-hyperinflation, which will be super bullish for gold and other precious metals. I touched upon this topic earlier here.

So why gold has declined so much in the past 3-4 years? Well, we have to understand gold had a gigantic bull run for 12 years, year over year non-stop. Can you tell me any other assets that have this kind of run for so many years? Definitely not as it has only occurred to gold. So with this kind of uninterrupted uptrend for so many years, one has to expect at some point there should be a rest period with correction. That’s exactly what is happening to gold. What we are seeing now is just a natural correction that will occur to any asset during their bull trend. It is just a rest for gold and it is healthy for the bull run. As long as the fundamental reasons remain intact, there is no chance gold will really turn to a bearish trend. I'm still super bullish for gold and will remain so for long long time in the future.  We just need some patience to let the natural market force go through its power and I think we are very close to seeing a truly phenomenal turn-around for gold. I cannot tell you exactly when but I’m sure it is very close. Be ready!

 

One relatively new ETF that trades gold in Japanese Yen and will be largely benefiting from the declining Yen is GYEN. You may consider to put some money here as part of hedge against of declining gold prices due to strengtheing US$.  I like the idea but due to its short life, I don't know if it can work out as it is supposed to be. Presumably, as long as the declining of gold price in US$ is less than the weakening of Yen against the dollar, this fund should be doing well.