• March 23, 2023

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For only the second time in 20 years, I had a simple no brainer investment idea, built a big position and took a bath. It’s not pleasant losing a big chunk of money on an obvious investment that screams buy.

That investment is gold.

With huge inflation coming you buy gold. It’s chapter one in investing for total dummies. When I went in, a large part of the investment world was predicting deflation, so the inflation call was a good one and somewhat contrarian at the time. The moment inflation took off should have been the cue for gold to go non-linear.

But it didn’t, nor did silver, nor did the gold and silver miners.

My young investing friends will simply throw up their hands and say, gold is Baby Boomer bitcoin and as dead as disco. They could be right, but I think it is likely something else.

Apart from cuddling a reasonable chunk of physical, I’m out of all the paper gold.

It has to be said clearly, there is an ever-increasing gap between paper gold precious metal prices and the shiny elements themselves that does suggest a problem with the whole market. The market itself is also tiny which leads to problems. Many people point at that as the reason gold doesn’t go ballistic.

For me I believe it is because there is a big seller.

You do not have to be a conspiracy theorist to note that gold’s rise over recent years has coincided with Russia’s huge build-up of gold reserves.

So let’s stop for a moment and ask the question, why do governments have gold reserves? Try this multiple choice:

  1. Because governments are going back on the gold standard
  2. Because governments want to underwrite their fiat currencies
  3. Because they love the shiny stuff
  4. Because they are dumb and can’t get out of the habit 100 years after leaving the gold standard
  5. Because gold is the currency of war

If you picked number five from the list it’s because you understand a country can’t pay with their IOU paper when they are up to their ears in blood and bullets.


So in the circumstances the idea is that Russia has been building up its reserves in preparation for war.

Now it’s got that war, it is a big seller. Gold knows no borders or sanctions.

So the trouble is Russia is going to be a constant seller of gold until the abomination of its war is over. It would be lovely if that was soon, but surely gold is not the investment of optimists.

Here is the chart:

If Russia is selling off its gold to fund its war and the war drags on, this is the way gold is going. Now you could get convoluted and suggest it would make sense for the West to sell into the gold market, too as a cap for what Russia can get for its gold. However, you can just look at the rise of gold from 2019 and put a lot of that down to Russian buying and see that selling would bring the price down to where that trend started.

This scenario is as bearish as the chart looks, which is why I’m out and licking my wounds. Meanwhile the dollar has gone rouge with the Federal Reserve set to hike till it crushes out all that money it injected into the system to bridge the Covid economic disaster. That is not bullish either.

So it’s wait and see, because when this trend reverses, then will be the time to acquire and likely there will be even better value out there to buy.


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