Palisade Research - Thu, Feb 11, 2016

2016 Gold Rally - False Correction Or The Real Deal?

Shiny Gold Bars pic

"If you don't own gold... there is no sensible reason other than you don't know history or you don't know the economics of it..." - Ray Dalio, founder of Bridgewater Associates LP, managing approximately $169 billion in global investments

The current gold bear market is now the longest since the Barron's Gold Mining Index began following gold producers. The drop in terms of losses has already surpassed both the bear markets of 1980-1982 and the 2008 Financial Crisis (source: our friend Jordan Roy-Byrne of TheDailyGold.com).

However, gold has been surging as of late; riding the coattails of economic instability, a depreciating US dollar, and the lowest Treasury yields since 2012. Throw in European banks falling to multi-year lows and the overall low-interest rate environment - the price of gold is the highest it's been in years!

The market has interpreted Yellen's latest comments as no near-term interest hikes, which in turn lowers the holding cost of gold. Capital inflow to gold ETFs is finally net positive, indicating that investors are slowly becoming more interested in the precious metals.

Barron's Gold Mining Index - Chart of Bear Gold Markets

Looking at the Bear Markets of Gold in the above chart, the recent move has certainly been significant, yet these types of rallies have occurred over the past four years. What has piqued investors' interest is gold's rise in the face of a falling stock market. This differs drastically from 2008 when a stock market decline dragged gold down with it. This time may be different and if that is the case, investors positioned in gold and gold stocks are poised for significant gains, both in absolute and relative terms.

All the signs are saying this rally is the real deal. The bear market has persisted for four long years with losses exceeding 80%. Let's go!

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