Unmasking Gold for a phase two rally
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Over the past two months, we have pointed out some of the key macro trends and different tactical approaches to deploy when attempting to capitalize on the long term rise of precious metals. We have discussed the “fire sale” from a supply shock that took place in March, the current deflationary environment and how it will become inflationary for silver, the cross analysis of owning gold while shorting another currency and finally the interest rate strategies the Fed will deploy to keep the ship afloat.
You can already see how gold is continuing to define itself as a safe-haven asset by looking at the upward sloping trend against most major currencies (chart below). Simply put, this means that the money that you hold in your pocket is declining in purchasing power, while the underlying hard asset you own “gold” is appreciating. This is because the Fed has its foot on the gas pedal and expanded the balance sheet from 6 trillion dollars on April 2 to 7 trillion by May 20. Things are about to get a lot worse.
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Where I am concerned is that the Fed is in the process of creating a serious financial hazard by over-inflating the asset values of U.S. equities while distracting the rest of us as to what is going on in the world. Remember the sole reason why there is optimism on “Wall Street” and this “FOMO” in stocks is because of the anticipated sharp recovery in China. China has now made the decision not to set a target for its economic growth in 2020. This decision will have a two-fold effect causing global equities to decline (i.e., Asia, Europe and Emerging markets) while frustrating key Chinese trade partners globally.
With 35 million workers laid off and an unemployment rate of 23%, the realities of the situation should push the U.S. into the next economic cycle called “stagflation.” This is persistent high inflation caused by the Fed’s reckless pumping of capital, combined with high unemployment and stagnant demand within our economy, giving us the worst of both worlds.
Many economic factors could affect the direction of the metals markets so be sure to stay up to date on the developments by registering for a Free two-week trial of the Blue Line Futures Morning Express Research Reports by clicking on the link here: The Blue Line Express Two-Week Free Trial Sign up