Why gold has a long way to go.... UP

Gold has had a fantastic run in the past few months, so much so that it is showing a parabolic move lately, virtually vertical line up. This kind of move is not sustainable and sooner or later, it will need to take a rest. As expected, gold is finally hitting the ceiling at least for the near term and turning back. A 5% decline within a day a few days ago must be quite painful for those who are chasing it lately. But I think more pain is likely to come in the near future. I won't be surprised to see a total 20-25% correction for gold, which may bring gold down towards $1500ish. Of course I'm not saying this must be the case but per the history, this is not an unusual correction for gold, which is typically quite volatile. 

Having said that, for the long run, gold has a lot of room to run.... to the upside! There are many reasons for this megatrend. But two major ones are important to be aware of. First is the basic economics 101: demand and supply. No need to say the demand for gold is huge and increasing. Here is the trend of 5 major central bank gold holdings that are increasing year over year lately. There is no sign of slowing down in this uptrend. 

While the demand is going up fast, the supply side is dwindling.  The chart below is from Barrick Gold, the world's largest gold mining company. It shows total world gold production over the last 10 years (through 2019), and what it's estimated to be over the next 10 years (through 2029)…I guess you don't need to be a PhD to understand that the supply side has peaked by now and is trending down quickly per the estimate. 

So clearly the negative demand/supply ratio will push gold prices to go up. There is another important reason bullish for gold: the negative interest rate. In general, gold tends to be inversely related to interest rates as shown below. But when the interest rate goes negative, it becomes super bullish for gold. Globally more and more countries have already gone negative for several years with their interest rates. Even in a few countries with the nominal interest rate still in the positive territory (US included), the real rate is actually negative as well after factoring in the inflation. One drawback to hold gold is that it does not yield interest to holders and therefore people tend to choose assets that provide some interest income. But if the real interest goes negative, this becomes quite bullish for gold as it becomes a great inflation fighting asset!   So regardless of what may happen to gold in the short term, gold has a bright future in the long run.  By the way, you must know by now that it is nearly a certainty that Wechat will be gone in the US. So very soon we have to communicate via other media. For DW investment group, we have set up a Telegram group. If you want to join, Here is the link for "DW  谈股论金": https://t.me/joinchat/SgYa_xNrjTNHk9cS51ke0A.     Importantly, you cannot join directly via Wechat. Two options: When open the blog in Wechat,  点击右上角的三点，然后选在Safari 中open，然后点击the link and then join  Or copy the link and paste to Safari to open and then join