The Golden Dilemma

As gold continues its tumble in the wake of the dollar’s rise, whilst most are frowning upon the situation some are taking positive steps to better their average positioning as gold is at almost its average cost of production per ounce. The mixed feelings surrounding the yellow precious metals is justified, however some are over stepping the board to an extent that they are starting to forget that gold is money and nothing else is money.

Investors are starting to become clueless about what is money and what is not and the dollar’s performance has made it look like the greater thing to own. Gold has dropped in value for the last decade with some estimates placing the drop to about 40 % and when it comes to gold, this is nothing new, as gold often takes the long route before reversing course (the last cycle lasted 12 years) and when it does bounce, it will bounce significantly before falling back to its real value and what is gold’s real value currently?

Way above than where it is currently and that is a fact!

There was a short bull run early on in the year which got most gold buyers excited, but the 6 week, 6 % run was short lived as the Feds stepped in just in time to announce their hikes which sent the market curling back into the capital arena. Regardless of the prescription that analysts are offering, the right thing to do would be to hold on to gold or gold related assets and better still if it is possible lower the cost of holdings by buying more gold or more stocks that are highly undervalued (especially small cap mining stocks) as these assets are destined to grow if not now, soon enough.

The fact that miners have started restricting their production could eventually tighten the supply chain which would eventually starve the market causing a surplus in demand, which is when all hell is expected to break loose and when this happens, no Fed hike rate announcement would be able to stop the raging bull as the market would be in a frenzy.

The last time gold rallied about 4 months prior to the crash of the Dow in 2007 when the Dow lost 50 % of its value and gold gained by more than a 100 % breaking the $1,900 per ounce barrier in 2011 before floating down to where it is currently. Gold which used to work in the opposite direction of most other commodities has somewhat changed its nature and if we observe carefully actually follows market movements and this only seems so, because the commodity markets is not moving much and this creates the illusion that gold is moving alongside with it.

Regardless, even if it is it true those in most instances markets are moving in generally the same direction when things go wrong, which they will; investors will dump one for the other and what they will be dumping will definitely not be gold.