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July 2019Report End of month report / chart

Connecting The Dots...

2016 was a watershed year.

It was the year the UK voted to leave the EU; Donald Trump was elected to be president of the United States, and it was also the year that gold began a new rising trend.

On June 23, 2016, a referendum was held in the United Kingdom to vote on whether to remain in the European Union, or withdraw from the single market.

In the end, 51.9% of those voting supported leaving the EU.

Today, as is painfully clear, the path to separation has been an exercise in futility, hostility and anguish, that will undoubtedly become increasingly difficult as the October 31, 2019 deadline looms on the horizon.

Within the United States, Donald Trump was campaigning on a platform of ‘Making America Great Again’; building a wall along the Mexican border that Mexico would pay for, and imposing tariffs on goods from China and Mexico.

On November 8th 2016, Mr. Trump won the election, and was inaugurated as president on January 20th 2017.

Since then, it’s been a rocky road relative to building the wall; imposing tariffs on our neighbors to the north and south, and commencing what has become a trade war with China.

But our job here is not to pass judgement on political decisions, or their outcome, but rather to look at our markets to see what, if anything they have to say.

And this brings us to the gold market which also saw a major move in 2016, and is still very much underway today.

If only gold could talk, and let us know what it is thinking. But as Warren Buffett says, “it just sits there, and stares back at us”.

The first chart in this month’s report illustrates gold and silver prices on a monthly average basis. As you can see, after falling for four years, gold found its low point at about $1,070 in December 2015. Since then, it been moving higher, albeit in fits and starts, as the monthly average came in at a 6 ½ year high of $1,413.30 during July.

To the extent that inflation has not shown up in any meaningful way, we must conclude that the rising price of gold reflects a flight to safety due to global market uncertainty.

And given the potentially disruptive outcome of Brexit; the ongoing and escalating trade war with China, as well as unsettling US / EU trade issues, we suspect the price of gold will be indicative of progress, or the lack thereof to these topics.

Another observation that is worth commenting on again, is the unusual relationship between gold and silver prices of late.

As both the monthly and annual average charts show, although prices have pretty much moved in the same direction for more than fifty years, gold and silver have been diverging, with the schism growing wider over the past three years.

Some people would point out that silver is in part an industrial metal, and so it should not necessarily track with gold. Others say it’s an apples and oranges relationship, that doesn’t really mean all that much.

Since Biblical times, gold and silver have been viewed as a store of value. And history tells us, that ‘silver is the poor man’s golds’.

So if gold continues to advance, sooner or later, silver is going to pick up the pace and narrow the gap with gold.

John E Gross