Gold stock sentiment indicator.
A quick word on money velocity.
Here is the M1 money velocity chart.
And here is the definition.
The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy.If we unpack this then the businesses and transactions that increase money velocity could be considered having multiple components. The following would be the most significant considering the damage caused by the pandemic.
Wages
Hospitality
Tourism
Local trades type services
Butcher, baker, grocer, etc.
To a large degree, local manufacturing and primary production.
All of these would retain almost 100% of transactions within the domestic economy apart from imported goods to facilitate these services.
Considering many of these sector have collapsed and some are almost non-existent, you can understand why velocity has collapsed.
Lockdowns sent the indicator plummeting from 5.28 in Q1 to 1.55 in Q2, 2020.
The local small business sector must be the subject of any stimulus program to put a floor under any recovery.
Forget the multinationals and publicly listed companies. They have been supressing wages, conducting share buybacks, funding financiers and diverting profits into executive and shareholder pockets, rather than reinvesting into business growth and wages, which are components of money velocity.
Even the Aussie government is subsidising large airlines and dressing it up as tourism stimulus. What a load of rubbish.
If you subsidised tourist destinations then people would want to go there. Bit hard to do this without being discriminatory (winners and losers).
Problem with these types of subsidy programs - the recipients suck it all up and increase prices any way for one reason or another (say fuel costs). Cost control is inclined to slip because of easy money.
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Back to the main game - GOLD.
This will warm the cockles of the proverbial.
From the Perth Mint:
Go here for the full story.
Buying frenzy fuels record sales of physical gold (perthmintbullion.com)It is worth reading because at the same time, depository and ETF holding have fallen.
Over the last few months international ETF holdings have seen outflows.
So where is all the gold going?
I suspect what we are seeing is a transfer of wealth. It is disappearing into private holdings and to make liquid the potential Exchange For Physical demand that I suspect is coming.
If we see a reversal of flows back into ETF's and given the above, I cannot see how there will be further decline in POG. Quite the contrary, price seems set to explode higher.
We already know Asian demand has picked up significantly.
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The sentiment indicator is looking good.
Leading indicators are still strong, in the mid-50's.
If we are able to see sentiment rise above well above 30% rather than pull back from this level, I would be extremely confident the bull leg has begun. Still have some way to go and I like this relatively cautious rise in sentiment. Suggests investors may skittish but that will change.
It is Friday. Often dishes something up.
Here is the indicator.
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