Gold is Worried About More Than a Brexit

As far as the market is concerned, Brexit is off the table, for today at least. In overnight trade, the Dow Jones index rallied 130 points, or 0.73%, while the S&P 500 rose 0.58%.

Europe partied hard, with the Euro Stoxx 50 index up more than 3%; commodities were generally strong too. Gold held steady, defying predictions of a sharp correction as the risk of Brexit fades.

That means our market should be in for another good session today, after surging 1.8% yesterday.

Although, if you’re bullish on gold, keep in mind that the latest Commitment of Traders report shows hedge funds are massively bullish too right now. The chart below shows the ‘net long’ position of speculators is as high as it’s been since at least 2008.


[Click to enlarge]

Speculative money is there for a good time — not a long time — so the gold price is at risk from a pullback as some of the Brexit fear unwinds. But if it continues to hold up in the event of a ‘remain’ vote, that will be very positive for gold’s longer term prospects.

It will tell you that gold is worried about more than just the slim near term chance of the European Union breaking up.

Maybe it’s the large and increasing amount of government bonds around the world that cost fund managers money to hold in their portfolios?

JP Morgan calculates that US$6.1 trillion in Japanese bonds trade on a negative yield. This is 78% of the outstanding Japanese bond market. In the Euro area, $2.4 trillion of government bonds trade on a negative yield — or 36% of all Euro area government bonds.

This disturbing trend has nothing to do with Brexit. It has everything to do with a broken financial system. That’s what gold is really worried about.


Greg Canavan,
For Markets and Money

Greg Canavan is a Contributing Editor at Markets & Money and Head of Research at Port Phillip Publishing. He advocates a counter-intuitive investment philosophy based on the old adage that ‘ignorance is bliss’. Greg says that investing in the ‘Information Age’ means you now have all the information you need. But is it really useful? Much of it is noise, and serves to confuse rather than inform investors. And, through the process of confirmation bias, you tend to sift the information that you agree with. As a result, you reinforce your biases. This gives you the impression that you know what is going on. But really, you don’t know. No one does. The world is far too complex to understand. When you accept this, your newfound ignorance becomes a formidable investment weapon. That’s because you’re not a slave to your emotions and biases. Greg puts this philosophy into action as the Editor of Crisis & Opportunity. He sees opportunities in crises. To find the opportunities, he uses a process called the ‘Fusion Method’, which combines charting analysis with more conventional valuation analysis. Charting is important because it contains no opinions or emotions. Combine that with traditional stock analysis, and you have a robust stock selection strategy. With Greg’s help, you can implement a long-term wealth-building strategy into your financial planning, be better prepared for the financial challenges ahead, and stop making the same mistakes that most private investors do every time they buy a stock. To find out more about Greg’s investing style and his financial worldview, take out a free subscription to Markets & Money here. And to discover more about Greg’s ‘ignorance is bliss’ investment strategy and the Fusion Method of investing, take out a 30-day trial to his value investing service Crisis & Opportunity here. Official websites and financial e-letters Greg writes for:

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