Gold Prices: Why Isn’t Gold Going Up?

Here’s a question a lot of gold bulls are asking lately: why isn’t gold going up? They point at increasing world tensions (mostly North Korea), rising levels of government debt (in the US and across the EU), and mountains of money thrown at major economies through quantitative easing programs (the US and EU). Traditionally, this sort of uncertainty would drive up gold prices. 

And that’s the question for us: why aren’t people really worried right now, and running for the protection of safe haven assets like gold and silver?

The answer is that they are, but the ways in which they’ll express that worry are complicated. The first thing you have to remember is that markets are made up of people. People are emotional creatures, not rational ones.  Yes, their decisions do have some sort of rationale. But any student of human behavior has noticed that two different people, when put in the same situation, may very well do two different things.

As the ancient mystery schools used to say, thus begins enlightenment.

Most people have a limit to how much bad news they want to hear. Then they will stop listening and look around for any good news to cling to.  This was very evident last week. North Korea launched a missile over Japan and dropped it into the sea within a few miles of their pre-announced plan?  And that missile is capable of easily reaching Hawaii carrying a nuclear bomb? We’ve heard a similar story before – isn’t it almost Thanksgiving?  Let’s decorate the house for winter!

That’s the first principle gold bugs need to understand right now. Between North Korea, fighting between politicians, cultural unrest, and Donald Trump, many Americans are closing down to bad news and looking for reasons to hope. 

If you’re into trading or investing, where is the good right now?  Two big new hit sectors – pot stocks and cryptocurrency.

In the US, pot stocks are still somewhat frowned upon, and there’s a lot of legislation to get through and around.  But cryptocurrency is still fair game in most places, especially Bitcoin.

In the past, when people were worried, they’d buy some gold and feel good about it. The shiny yellow metal has signified wealth for many centuries now, and probably still will into the distant future. Bitcoin offers a similar promise in a modern technological package. Modern technology offers lots of endorphin-promoting happiness through cell phone apps, pretty graphics and even happy sounds. No wonder younger investors flocked to it over the past year.  You can even watch Bitcoin flow around the world at the FiatLeak website here.

 Related: These 3 Charts Show How Well Gold is Doing Lately 

Only recently have established brokerages even begun to acknowledge there might be something valuable or useful in the cryptocurrency space. And of course, with their interest comes money. Small at first, but make no mistake – when Wall Street gets into something the numbers can stretch your imagination.

So for this first installment of ‘Why Isn’t Gold Going Up?’, we’ll point at Bitcoin specifically, and the cryptocurrency arena in general.  Rather than buying gold, newer investors have been buying Bitcoin and other cryptos, and so a portion of consumer demand is missing from the market.  That demand may come back, as any big shock to the Bitcoin story is likely to have a large backlash.  Two places such a shock might come from: Regulations to control or tax Bitcoin in the US. China has already passed similar laws.

And Number Two: Any technological breakdown in the Bitcoin system, which relies on internet connectivity, a large mining network, and lots of security.  There have already been security problems with Bitcoin, and there will doubtless be more.  Timing is crucial – the wrong piece of news at the wrong time could send Bitcoin values tumbling rapidly, and that could get gold prices moving again. 

So while all that is quite dramatic, the principle for our purposes here is quite simple. We’re back to basic economics: Reduce demand and prices can’t rise much.  That’s what’s happening with gold prices right now. With the advent of popular substitute goods, demand has fallen and so gold prices aren’t rising. Bitcoin is the new guy on the block draining demand from gold as a safe haven. There are other reasons, which we’ll cover in the coming days.

Signed, The Gold Enthusiast

DISCLAIMER: The author owns 0.0573 Bitcoins.

 Related: Here’s Why Gold Funds Are Buying Bitcoin Now

About the author

Mike Hammer

Mike Hammer has had a wide-ranging career, with trading and investing as a continuing theme. Mike graduated from UC Berkeley with a business degree, then worked with Macy's in their operations arm. He left Macy's and spent a summer trading his own account, which taught him a lot about trading in general and markets in particular. Trading through the Black Monday and the Crash of 1987 showed him how most people are unprepared for upheavals in their trading. He then joined Waddell & Reed as a financial advisor, helping regular people understand their finances and meet their life goals.

Then came the usual story - Mike met and married the lady of his dreams. They moved to upstate New York, where Mike worked first for a small manufacturing consulting company, then Cornell University. While loving the work and the higher-education atmosphere, Mike missed the world of finance. Eventually, he signed up for stock trading coaching with the Adam Mesh Trading Group, to learn from people who understood modern markets. Within a year, Adam asked Mike to become a stock trading coach.

Since then, Mike has trained over 200 individuals, spoke at several national conventions, and is a frequent contributor to conference calls across the Adam Mesh community. Mike writes The Gold Enthusiast daily newsletter, runs the Golden Hammer trading service, and participates in the Mesh Private Portfolio. He also keeps a position in international education which keep him in touch with "the student mindset". Mike closely follows the gold, energy, and financial sectors. His motto is "Plan your trade, then trade your plan!"

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