DMR–Gold hovers, 2018 Year of the Doldrums for investment markets thus far

Gold continued to hover in the mid-$1290s lacking any clear motivation to strike out in either direction – up or down. Gold owners might be a somewhat disappointed with their favorite precious metal being stuck in the doldrums. The angst, though, might be somewhat relieved when it sinks in that all the markets have been stuck in the doldrums for much of 2018.

The Dow Jones Industrial Average is down 2.6% on the year. Bonds have come down with a resounding thud. Commodities, which have received much attention thus far this year, have not responded in kind – up only 1.4% on the year. The dollar has been the star performer among primary assets, but even so the gains have been less than inspiring – up 2.8% on the year. Gold, as it turns out, is just one among many non-starters for 2018 with a paltry .7% gain thus far on the year.

So we should see 2018 for what it has been for most investments during its first five months – the Year of the Doldrums.

Quote of the Day
“Speculative bubbles have occurred throughout history. These episodes are characterized by a continuous sharp rise in the price of a particular asset or group of related assets, leading to further price increases driven by new speculators seeking profits through even higher prices. These higher prices are driven by the potential profits to be made through trading, rather than the earning capacity or economic value of the asset. These speculative manias then come to abrupt and dramatic endings, as expectations change and buyers quickly become sellers, in mass. The consequences are often disastrous, with the ensuing crash inflicting financial pain on the region or country involved. Euphoria turns to despair as the mandatory readjustment that takes place in the economy creates massive worker dislocation and great numbers of bankruptcies.” – Douglas French, Early Speculative Bubbles and Increases in the Supply of Money

Chart of the Day

Chart note: Since gold’s secular bull market began in the early 2000s, silver has kept up with its sibling metal in fits and starts. Presently, at a ratio of just under 79 to 1, silver is greatly undervalued relative to gold. The gap between the two metals, as you can see in the chart, has become accentuated in recent months leading some to think silver is overdue for a catch-up rally. There is precedent for such a rally. Silver trailed gold in 2009-2010 then spiked to close the ratio to 32 to 1 in 2011. In early 2016 it again trailed gold then sharply accelerated beginning in April of that year to close the gap. Silver enthusiasts are hoping for similar performance in 2018, and we have seen some signs of a make-up rally. The ratio’s interim peak came in March of this year at 81 to 1.

 

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