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By Tyler Durden

As global stock markets have soared in recent weeks, accelerating most recently after the dud of the G-20 meeting, gold has also rallied, strongly suggesting there is anything but confidence in this ramp.

So Gold Is Screaming, but as ConvergEx's Nick Colas asks, What Is It Saying?

Gold is up 19% so far in 2016, with prices making new one-year highs just in the past week. That shouldn’t be happening.

• First, gold has been stuck in a nasty (-44% peak to trough) bear market for +4 years.
• Second, global equity markets have begun to recover so risk-hedging assets like gold should be falling as stocks advance.
• Finally, isn’t technology supposed to be making all physical forms of wealth obsolete anyway?

Turns out there is a bull case for gold, and it is as simple as supply and demand. World Gold Council data for 2015 shows the slowest growth in mine production since 2009 and the weakest recycled supply since 2007. They expect production to actually fall in 2016. Meanwhile, demand is on the upswing from financial buyers like ETF investors and bullion coin investors. Looks like we can add another year to the +5,000 prior ones where gold has been a relevant asset class.

Investors in risk assets are breathing a sigh of relief as we begin the sprint to the end of the first quarter. Stocks in developed markets have stabilized after a rough start. Oil prices have shown some resilience. The CBOE VIX Index is 17, below its long run average of 10. Even the high yield corporate bond market is acting better.

And yet there is one asset that seems to still ring the alarm bell: gold. This oldest of all investments is up 19% in 2016 and hit a new one year high just last week. That’s significant, because the yellow metal is continuing its winning ways even as stocks and other financial assets seem back on more solid footing.

Many financial analysts and pundits claim that gold is unanalyzable since it has no cash flows. Its appeal, they claim, is based on historical precedent and nothing more. By this logic, gold has either zero value or infinite worth. The difference is simply whether you believe in modern financial systems based on central banks and asset markets or think Armageddon is just around the corner.

But look at gold as just another commodity, like oil or corn or sugar, and you get a different calculus. Price is where supply meets demand. No harsh value judgments about why the demand is there… It exists (and has since before humans knew how to write or use the wheel), which means we can value gold along these lines.

By that metric, the rise in gold prices is perfectly explainable. The World Gold Council keeps tabs on the global industry, and here are their statistics:

• From Q4 2012 to Q3 2015 gold production expanded from …read more

  Source: Gold Screams (But What’s It Saying?)

      

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  Posted March 8th, 2016 in Uncategorized.