Gold’s Real Price Leads Gold’s Nominal Price
The chart illustrates two price series: 1) the black line is Gold’s “Real” Price best expressed by the ratio Nominal Gold/ Commodity Index. 2) The gold line is Gold’s “Nominal” Price.
A Pivotal Moment for Gold Prices
In August 2007, a significant event occurred in the gold market: both the commonly reported market price and the inflation-adjusted price of gold surpassed levels not seen since the 1980s. This breakthrough coincided with the beginning of the Global Financial Crisis, marking a pivotal moment for the economy and investors alike.
The Influence of Policy on Currency Value
The crisis prompted unprecedented actions by governments and central banks, which have since cast doubt on the ability of traditional currencies to maintain their value. This skepticism has been compounded by a general reluctance among banks to create new money. The emergence of Bitcoin in 2009, can be seen as a market-driven response to a growing preference for a more reliable form of currency, often referred to as “Sound Money.”
Adapting to ‘The New Normal’
This term “The New Normal” has been coined by experts to describe an era characterized by subdued global economic growth, lower interest rates, and a slowdown in the improvement of living standards, particularly in emerging markets. In many developed countries, living standards are actually in decline.
The Underlying Force Behind Gold’s Value
Despite its fluctuations, the real, inflation-adjusted price of gold has been the primary factor driving the increase in its market price. This trend is not primarily influenced by changes in interest rates, inflation rates, geopolitical conflicts, or the strength of the US dollar. These elements are secondary to the main theme played by the global monetary system. The U.S. Dollar is the global monetary system’s denomination. The method and location of its sourcing is much more complex and broader than commonly understood. That is why despite extensive government monetary expansion and intervention, the US Dollar Index has risen significantly since its low in April 2008, a development that has puzzled many experts.
Seizing Investment Opportunities in Gold
The current financial landscape has presented a unique opportunity for discerning investors. While the majority are preoccupied with the record market prices, the true insight lies in recognizing the importance of gold’s inflation-adjusted price. This understanding is particularly crucial for strategic investments in the gold mining sector, where timing is everything. The Agio Gold Sector Fund uses two signal types to time and scale position entries and exits; one type is tactical, the other strategic. The tactical method applies a specific combination of technical analysis metrics to minimize loss probabilities. The strategic tools focus exclusively on monetary systemc risk factors. Empirically, investment trends in all categories depend on global monetary conditions – whether credit is expanding at sufficient rate in a self-reinforcing manner to insure your portfolio’s profit. The Agio Gold Sector Fund’s approach is designed to optimize returns at all degrees of trend.
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