The real reason gold is falling One thing I haven’t covered much of in the past couple of weeks, is gold’s correlation to the US bond market. That was something I was going to dive into today, but then Greg, Editor of Greg Canavan’s Investment Advisory, summed it up neatly in an exclusive subscriber letter earlier in the week, writing: ‘I know there is a lot of confusion about gold. I mean, why is gold falling when central banks are expanding their balance sheets and governments are running huge deficits? Surely gold should be going up in such an environment, not down? ‘The most important thing to understand about gold is that it is highly correlated to REAL interest rates. That is, nominal rates minus inflation. ‘You can see this relationship most clearly when you overlay the gold price with the iShares TIPS Bond ETF. This represents the price of “treasury inflation protected securities”. When the price goes up, it’s an indication of real yields falling. When the price of the ETF falls, it tells you real yields are rising. ‘Given the increase in real yields, it should come as no surprise to see the gold price under pressure. And if real yields continue to rise, the gold price will continue to fall. ‘But this is where you need to think about the financial system and the role of gold over the longer term. When you do so, you’ll see that gold is on its way to becoming another great buying opportunity. ‘Here’s the thing though. The global economy and financial system is structurally broken. The more this “recovery” continues, and the higher real interest rates rise, the closer we get to another “problem” for the global economy.’
Greg’s face may be new to readers of The Daily Reckoning Australia, but I assure you he’s been honing his craft for even longer than me. He’s hosting a live event right now, where he will be talking in depth about the looming problems ahead for investors, where he’ll explain in detail how the financial system really broke in 2008…and how investors need to adapt to this life with zero interest rates. Cut your losses and run…or buy more? Is it ugly out there or are the markets ripe with opportunity? The walloping in gold is taking a toll on gold stocks. But I’m ‘two bull and one bear gold market’ old. Given I’ve been doing this for more than a decade, I focus less on what the daily price is doing and focus more on the long-term drivers of gold. All I see right now are more reasons to climb in. For those that are wanting to own physical gold, you couldn’t ask for a better time to buy. It’s even better being an Aussie, because the strong Aussie dollar is driving down the cost price per ounce of gold in our money. Right now, you could pick an ounce of gold from most bullion dealers for less than AU$2,300. The last time we could get our hands on the metal under that was way back at the start of 2020. Rarely do we have a strong Aussie dollar and falling US dollar gold price working in our favour. It’s a similar story for those looking for a little more leverage to the volatile gold price. ASX-listed gold stocks have taken a beating in the past few months. Many of our major producers are at where they were when the market crashed last year in March. Northern Star Resources Ltd [ASX:NST], Newcrest Mining Ltd [ASX:NCM], Regis Resources Ltd [ASX:RRL], and AngloGold Ashanti CDI [ASX:AGG] have all slid down to their March 2020 bottoms. Yet all of these companies are cashed up and cheap producers. All pouring gold for under AU$1,380 an ounce. Meaning they are selling gold around AU$800 higher than their costs. The contrarian play is investment in something when it’s unloved by the market. And that’s exactly what is happening with gold stocks and the yellow metal. I say that just presents you with an opportunity to get in while others are fearful. Until next time, Shae Russell,
Editor, The Daily Reckoning Australia PS: Want to talk small-caps? That’s exactly what you’re Daily Reckoning Australia editors did yesterday. Over on our YouTube channel, Callum and I sat down and threw out some ideas on how to find tiny stocks ready to disrupt the markets. | 
