We’ve seen a good bit of writing lately on gold’s prospects in the face of the latest Greek drama and an expanding war on the Russian front, and frankly, we’re not impressed.
A great many seem to believe that higher gold prices are on the menu as result of the instability created by these two ongoing situations.
But it just ain’t so.
A Mental Problem
We’re not here to make fun of people with genuine mental conditions, or those with related disorders like anxiety, depression, etc. We’re often accused of being unstable ourselves, and we know how much it hurts – and we haven’t been diagnosed with anything!
Far be it from us to cast aspersions.
Rather, we want to point out that there is a certain willful desire toward self-destruction that’s plaguing the world these days and goldphiles apparently haven’t been spared the malady. In fact, it appears they’ve mapped out their own unique path to perdition.
The chart below shows how one rather enthusiastic gold believer views the shape of things to come for his favorite metal, and uses the Ukraine war to help him explain the fantasy.
He writes (on a rather notable website) the following bit of blather –
“As Ukraine’s socio-economic situation goes from worst to worst-er, today’s announcement by President Poroshenko that the government will take action to stabilize the currency has Ukrainians rushing for the exits into precious metals… with only one goal in mind – wealth preservation.”
The charlatan then produces the following bit of chartitude to ‘prove’ his contention that Ukrainians are now, like him, true believers in the shiny metal as the only reliable means of exchange and genuine store of value.
The chart shows the price of gold spiking in Ukrainian funds in the last few weeks.
The only problem is, there is simply no evidence here that Ukrainians bought anything, let alone gold. What it does, in fact, show is that the Hryvnia dropped in value against gold. Nothing more. And be sure: there is absolutely nothing significant that has happened here for gold investors to be excited about.
What?! How dare you mock the Kingdom of Gold!
Is it true, then, that not a single Ukrainian ran to buy gold with his devalued Hryvnia? No, sir; some might have. But those purchases were simply not related to anything represented on the chart above.
And to prove our point, we offer a second chart, below.
This is the same Hryvnia mapped against our own red, white and blue Yankee dollar for the last six months.
And whaddaya know –
“…rushing for the exits into the U.S. Dollar… with only one goal in mind – wealth preservation.”
Isn’t that, after all, what the chart shows?
The above two charts show the exact same thing, and we could reproduce the Hryvnia’s latest action against twenty or thirty other currencies and get the same result. Individually and severally, these charts indicate that the Ukraine has been taken over, in part, by a hostile foreign power and that its currency, already among the more flaccid moneys in circulation, just got limper.
The tape measure you use to determine how much limper makes no difference.
Greece the Wheel of Gold Lies
So with Ukraine, so, too, with Greece.
The potential for a Greek exit from the Euro and all the market damage it might cause has been on the front burner since just after New Year’s – January 25th to be precise, the day the Greeks elected a new government whose anti-austerity platform had financial markets wondering whether that nation of eleven million would honor its previous bailout pledges.
Along with that concern, of course, the gold bulls came a’running, touting the inevitable positive effect all this would have on the gold market and showing misleading, extrapolated data proving a wild upsurge in Greeks purchasing gold coins over the last few months.
As usual, however, the truth was otherwise.
Take a look at a six month chart of the SPDR Gold Trust ETF (NYSE:GLD), an excellent proxy for bullion –
As you can see, the uncertainty and risk inherent in the Greek political situation DID ABSOLUTELY NOTHING FOR GOLD. The precious metals have been in a slide from precisely the day polls showed the radical left Syriza Party would win by a landslide (blue lines).
Moreover, even if the facts were on the side of the gold bulls and Greeks were actually buying record numbers of gold coins, it’s still meaningless – a) because Greece has such a tiny population, and even a 100% increase in the amount of coins purchased is still a drop in the global gold bucket, and b) the number of coins purchased on an annual basis per capita in that country is so minute compared to vast global flows in and out of gold, that to expect a pickup in price is illogical in the extreme.
So much for geopolitical influence on the gold market.
Gold has been thrown under the bus, friends, and MACD just confirmed a bearish RSI read by submerging below its waterline late last week (black boxes). That means it’s time to kick, beat, cut and sell the fancy rock.
Anything but buy.
Many happy returns,
Matt McAbby, Senior Analyst, Normandy Research