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The great upcoming gold bailout!

Commentaries & Views

That is a joke! There is no "great gold bailout" because you cannot just print gold the way you can print U.S. Dollars, and the Federal Reserve is the best printer of all time. Then again, there was the currency of the Weimar Republic in 1923, where at one trillion Marks to one dollar, a wheelbarrow full of money would not even buy a newspaper. In 2009, Zimbabwe's central bank allowed its citizens to exchange the country's almost worthless currency for U.S. Dollars, and its 100-trillion-dollar note was worth just 40 U.S. cents. Then there is Venezuela, where using cash in place of toilet paper would seem to be an affluent action in most countries, but down there, it is now the financially prudent thing to do. 

So back to my "Super" fiscally responsible U.S. Federal Reserve, where the balance sheet has expanded to $7.1 trillion and has socialized short-term equity losses by building a speculative credit and leveraged equities portfolio that is going to lead us out of this mess, right? 

This article aims to look at why gold has not broken out yet to the upside and the most significant risks to our long-term call of $2,500+/oz price objective. The new edition of our free "Gold Trends Macro Book" has been updated with slides on silver is now available. This monthly updated booklet will provide you with all the quantitative analysis of the gold market. You can request yours here: Free Gold Trends Macro Book.

Know this chart Gold since August 2018

Why was this the bottom of gold in recent times?

In the third quarter of 2018, the economy peaked, marking an essential cycle top with GDP at 4.2%, unemployment continuing to make record lows, and 10-year yields at 3.25%. Powell indicated the markets are on "autopilot" raising rates and discussing economic modeling. 

With the 10-year yield grinding down to 0.64%, one can see that it did not take the shutdown to indicate that the economy was already in trouble.

Now we know the “trend” (3 months or more) from the first two charts, now let us look at the “trade” 3 months or less in the chart below.  Gold has a resistance pocket from $1780-1800 that in time should be broken.

The two most significant risks to our bullish case are:

1) A full recovery in the global economy that pushes real interest rates higher. If you hear the words throw out your mask, a vaccine is approved, Disneyworld is at capacity, and Chucky Cheese is back, gold is most likely going lower.

2) An unlikely scenario, but not out of the question, is that another liquidity risk strike, i.e., March 9 to March 19. “Sell everything” use days like this to build core positions.

We have been extensively covering the technical backdrop of the precious metal markets in the Blue Line Futures Morning Express Research Reports such as volume pockets, support, resistance and retracements. Be sure to stay up to date on the developments by registering for a Free two-week trial by clicking on the link here: The Blue Line Express Two-Week Free Trial Sign up

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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