Ann: Quarterly Activities Report, page-29

Gold act as hedge against inflation – so they say and I’ll get back to this later.

Lately though, gold has been acting as hedge against deflation as rates plummeted and in many cases/countries went into negative territory price of gold spiked. People tried to prevent their fiats from losing value by keeping it in their savings accounts.

Everyone says when inflation hits rates will go up and as rates go higher price of gold will fall as gold does not have yield while on the other side bonds will now be paying high enough yield for people to move their money from gold to bonds.

Here is what I think will happen:

As US, EU, Japan and many other countries start injecting more and more stimulus inflation will kick in and rates will start to go up. UST’s rates are already higher than 2-3 weeks ago and as rates start moving higher we are seeing price of gold falling.

My view is this event will be short lived as central banks (CBs) will be forced to intervene and push rates down while letting inflation run higher. Reason why rates will be kept below inflation is because there is too much global debt and no one can withstand higher rates. Also, one why to wipe that debt off is via inflation. Not sure how that will work if wages don’t grow and I can’t see wages going up in many countries.

Once CBs start to push rates down by buying government and probably corporate bonds, price of gold will start to go higher again and will not stop for long time.

But in the meantime, there could be good trading opportunity. It will be good chance to buy cheap miners. I sold out most of my positions and only hold few NCM, GOR and fair bit ALK (sold few yesterday) in hope to buy at much lower entry points. Kept few in case I am wrong. In ALK case I kept bit more as ALK can make an announcement that can drive SP much higher even if POG falls $150 per ounce.

Hope this helps and I welcome other people’s angles on this subject.