Inside the Gold Rush

by | May 14, 2024

A few days ago, before my Perfect Gold Trade webinar, I sat down to shoot the breeze with my publisher, Stephen Ground.

He asked some insightful questions and I gave him a lot to chew on.

We got such great feedback on the conversation that I thought I’d break it out into its own short video (less than 15 minutes) so you could watch it on its own.

Below the video is a transcript if you prefer to read.

Hope you enjoy,

— Geof Smith



Editor’s note: The following transcript has been edited for clarity

Stephen Ground: I was taking a look at the gold chart this morning, Geof, and I noticed that we had a spike, and I’m looking at GLD right now rather than gold futures, but it had a spike right around 10am. Moved up about a dollar a share which was nice to see after a a couple of days of you know, kind of so-so action. What are your thoughts on on that move? And just generally how gold is looking right now?

Geof Smith: Oh, well, gold is, I mean, heck! We had a 34% rise since last October, so for it to correct back a little bit is not unusual.

I mean, we have made new all-time highs, and they’re kind of pulling it back a little bit. They’re are holding really good above the 2290 to 2300 area. And right now, I’m really watching the 2365 level. If we get above there, I think we get another leg up.

We’re trying to get there a couple of days ago. They got about 2350, and then they kind of pulled back again. So it’s trying to kind of ramp up a little bit.

I’ve was noticing even South Korea’s central bank is starting to eyeball gold. They had a huge gold buy back around 2011 and kind of sat on it for a while. But now they’re thinking about jumping back into some more gold in the coming months, which ought to also put pressure on it. I know China has been buying gold right and left.

In fact, a lot of the central banks are, though it’s kind of cooled down a little bit. I think they’re kind of waiting for it to do this little pause and pull back. But this is nothing unusual to get, you know a small 3-5% pullback after something run 30%. So no big deal.

Stephen Ground: What do people need to know? That’s that’s a question I’m really interested in because you’re obviously an expert on commodities and and spend a lot of time on these things.

Why should it matter to people when they see a headline like China is buying up gold? Maybe their instinct is to think, why do I care?

Geof Smith: The the big thing that’s going on around the world has been happening for quite some time. You probably heard it in the news.

A lot of people are trying to kind of decouple from the US Dollar. It’s the world’s reserve currency. And they’re kind of shifting over into gold to back their currency — and even shifting into the Euro which is kind of interesting.
They’re trying to make the Euro into something.

Also, there’s this talk that the Chinese Yuan is going to take over the currency market. I don’t know if that’s really gonna be the case or not. It would have to be a long-term play to see if that ever happens. But if that does, we’ll see that in the US Dollar index. Right now, it’s up around 105 and has been holding above the 103.50 area.

If we ever see that break back down below par value, which is 100, we might start seeing it start to correct back down. That actually happened back around 2008, the US Dollar Index went down to the 72-73 area before it turned right back around again. So that’s just kind of the cycles they go through. I mean, as far as us…

I’m not really concerned about the US Dollar going away in my lifetime. It’s not to say that it can’t. But that would collapseone of the world’s largest economies if that happens. So I don’t think they’re gonna let that happen.

What I do know is that there are a lot of central banks trying to back up their currency with gold. And that’s one thing that’s really great about. Gold has been around for millennia, and it is an asset that will back anything.

I mean, the US had a great asset up until the early 70s, when Nixon took us off the gold standard. Before he did that, we actually had to limit our borrowing, but since he took us off the gold standard, borrowing has just gone rampant and a lot of people are kind of worried that we’ve flooded the market with US Dollars. And what’s really interesting about that is that really only about 5% of the “US currency” is in actual physical coinage or bills. The rest of it is just electronic.

So when you hear people yelling screaming about Bitcoin and Ethereum, and all these digital currencies… Well the US Dollar has been electronic for 40 years!

So that’s the thing, they just click a button. Think about wiring money from one account to another. It’s just a transaction. There’s no greenbacks — no physical currency that changes hands. It’s just “This amount goes to that account. This is a debit. That is a deposit, and there you have it.”

Even the stock market is basically the same way. You see this little number in your trading account. Well, if you call them up and say “wire that to me right now”, they’ll go “hold on” because they’ve got to get all their ducks in a row before they can do that, because it’s not cash.

And that’s the that’s the thing — everything’s kind of electronic. And I think people are starting to notice that. And so central banks are trying to buy up a lot of gold just to back all their paper money, if you will. That really shores up their their economy and their currency when they do that. And in the US that’s one thing that we’ve gotten away from is trying to back up our currency with gold.

But the thought has always been that the US economy is very, very strong and we’ll still be able to pay our taxes and pay our debt just based off what the economy is doing. But I don’t know. I think it’s gonna come back to bite them before long, and I think it’s going to make gold even stronger. Especially when the demand really picks up, you know when everything’s getting shaky.

Just look at the global situation right now. Every time you turn around, something else is happening. You just never know what’s gonna happen next. And what’s really interesting is you’ll see gold surge up off of that. Literally, you go back to last October, when gold had a 30% push up. Well, what happened last October? Hamas went into Israel, right?

So all of a sudden, the Middle East is in unrest, and everybody’s going “Oh, no!” and they start buying up gold to get into something safe. Now, you wont’ see any news saying gold surged up because Hamas went into Israel. You know you don’t see that kind of news, but that’s what people are doing when they buy gold in response to that. It’s a fear metal. Once they see something goes awry, they think, “Well, now, what’s Iran gonna do?” And then they see Iran’s firing missiles over there. So everybody’s buying up gold just because it’s safe in times of unrest.

You know, everybody used to jump into the bond market because bonds were safe. Well, no one’s been able to buy bonds for the past 10-15 years because you couldn’t get anything out of them at the time. You can now, but who wants 1-2% or even no yield when you can get a better yield out of the stock market.

So that’s the thing — I think gold is one of the best assets. But there’s a really cool way to trade the gold market on a more frequent basis, as just opposed to just buying and holding. There’s nothing wrong with buying and holding, but I think I think there’s a lot of other ways, to trade gold and and make a lot of money off of it.

Stephen Ground: Yeah, you can do both. One last question before we dive into that. How much of the price movement of gold that we see in the markets actually depends on that physical gold demand, like China buying up huge chunks of gold?

Geof Smith: That’s the thing — you look at either GLD or you look at the gold futures — ignore the gold miners — it’s all based off price appreciation. It’s it’s actually backed by physical gold. One share of GLD holds something like .00032 ounces of gold or something like that. I forget the exact number.

You’re actually controlling gold with GLD or with gold futures. And with gold futures, it’s actually deliverable. So you can be delivered a hundred ounces of gold. Fort Knox just goes “click”, and now it’s yours.

Supply and demand gets into the gold market. I don’t know the exact word — I’m an engineer, not an English major. But it’s a sentiment kind of thing of global tension when people rush into gold.

Just look around the US Mint, and you can see all the beautiful coins that they make there. But, man, you talk about a premium. You look at a one ounce silver
American Eagle silver coin. And they’re asking 60, 70 bucks for it. Well, silver is at $25 to $27 an ounce, so they’re wanting almost 3 times that for a coin.

And they sell out. People are buying them out hand over fist.

You see a lot of that buying that’s out there is people actually accumulating gold and silver, just because, hey, you know, if somebody shoots a nuclear missile somewhere in the United States, t least they have something for tender.

Anybody around the world will take gold and silver, and it’s a global currency. It doesn’t matter where you go. You show somebody a piece of gold and they know what that is. They might not know what a US Dollar is, but they know gold and silver.

I think that’s the big thing. I think a lot of people right now are looking at the global situation and just wanting to have something that they feel safe with.
That’s the story on gold.

Silver is a little different. And that’s the one thing that you have to kind of be aware of when it comes to the silver market is that it’s more of an industrialized metal. And you’ll see it move off manufacturing news often.

Silver will often outperform gold on a percentage basis. Look at what silver did during gold’s recent run. It moved from what about $19 up to $27 or $28! That’s a huge move compared to gold.

Other times silver will move contrary to gold, just because it is an industrial metal and you know sometimes the manufacturing numbers, ISM Manufacturing Index or factory orders, or something like that comes out, and it’s weaker than expected. So it’ll pull down and in the meantime gold is going up. So you do have to be aware of that with silver. But I think silver is is more of a kind of a buy and hold market as opposed to gold.

Gold has so many different cycles in it that you can make a lot of money on it. Silver sometimes will make you scratch your head sometimes and go, “What are you doing?” And that’s that’s the one thing about silver.


P.S. After this short conversation, we went right into my latest presentation on how I’m trading this gold rally. (hint: it’s not buy-and-hold) Hope you get to see it.

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