It is an inconvenient truth for gold investors that what looks a very solid upward line on the price graph for the past decade is actually a wiggly line with periodic side movements.
Since the all-time high of $1,923 last September gold has been in such a consolidation phase after a sharp fall back. If you stare at the chart for long enough you can even begin to see the end of a trend.
Then again, perhaps not! The fundamentals underpinning the gold price continue to be monstrously stacked in favor of the yellow metal.
In a world of quantitative easing by global central banks it is the one currency that they cannot crank up the supply. Gold is mainly dug out of deep mines and they are struggling to keep pace with existing demand.
Nobody can create electronic gold. Bullion websites of any quality all have unimpeachable audit trails back to a bar of gold in a vault.
What hangs over gold is the ghost of 2008 when the financial crisis saw a sell-off in precious metals and not a rally to this safe haven. Everybody thinks the same could happen again very soon.
However, precious metal prices not only rebounded from 2008 lows but went on to hit new all-time highs (or close to 1980 in the case of $48 silver in April last year). Those who bought and held gold over the past four, five or ten years are happy investors.
Besides it is far from certain that another global financial crisis would automatically be a black day for precious metals. It’s the bond markets that look most vulnerable this time and not equities.
Bullion and bonds
And when bond markets crash in the past that has always been the moment for bullion to outperform. Will it be any different this time?
Be careful to compare apples with apples. No two financial crises are exact replicas and surely what we are facing is a continuation of the past crisis caused by too much debt with another caused by too much government debt.
That really is a very different set of circumstances for gold and silver. But there is still room for caution because the eventual return of high interest rates will be curtains for precious metals.