Having closed lower for 8 of the last 9 weeks, gold has become the momentum-chasing hedge fund community's latest target. Despite empirical data showing no relationship between higher rates and 'lower' gold [3], the meme continues as Managed Money added to its already record short position in gold futures this week, pushing the leveraged bets to the most extremely bearish in history.
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Our assessment is that one simply cannot afford to ignore the fact that gold provides insurance against a potential blow-up of the global fiat money and debt bubble – regardless of its near to medium term price performance. Its performance is in any case only negative in USD terms – in no other currency can gold be deemed to be in a significant bear market. In fact, as we have recently pointed out, it is already making new all time highs in some fiat currencies [5].
Gold’s characteristic as a hedge/insurance against the consequences of policymaker machinations has recently gained additional importance in light of the fact that the echo bubble is clearly fraying at the edges [6] already. Sooner or later there will be another full-blown crisis, at which point gold ownership will definitely be of great advantage. It is often said that the only certainties in life are death and taxes, but that is not quite true. There is another apodictic certainty: all booms driven by credit expansion will eventually blow up.
