Gold: another leg higher?
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
May 9, 2023
- Last week, even with central bank rate hikes and a key employment report, gold held its $2000 line in the sand.
- Tomorrow is the (CPI inflation) report… and gold is quiet but firm.
- Double-click to enlarge this key weekly chart. In 2020 and 2022, gold sold off violently from the $2080 zone, but this time the world's "Queen of currency" is holding her ground.
- There is a small non-confirmation of RSI with the price, and the 14,5,5 series Stochastics oscillator is overbought with a crossover signal in play.
- Regardless, gold can continue to move higher before the overbought situation becomes more extreme and ushers in a major reaction.
- For a look at the daily chart. Double-click to enlarge. Note the buy signal in play on the Stochastics oscillator at the bottom of the chart.
- The daily chart also suggests there may be one more leg higher before a reaction begins.
- Basis the DXY, the dollar's action is in sync with gold; one more dip lower is likely before there's a big rally.
- Gold could trade as high as $2200-$2400 before a significant rise in the dollar gets underway.
- What would cause the next significant rally in the dollar? For the likely answer to this question. An end to the basing action for oil and a huge rally towards the $130 area high would almost certainly be the catalyst that causes the Fed to begin another round of aggressive rate hikes.
- At that point though, both gold and the dollar could rally together because the hikes would almost certainly create the most bank failures since the 1930s.
- While the Fed and Treasury would bail out the banks, the amount of money printing required to do it could blast gold to $3000 and higher!
- The Ukraine war was the main catalyst for the last big oil price rally. It's unknown what the next one will be, but the basing action on the oil price chart suggests it's coming.It's likely to be caused by more US government global meddling that goes badly awry.
- In the short term, the debate over the next raise of the US debt floor (some analysts call it a ceiling) continues to support the gold price.
- Bank lending is slowing down and this is going to put some pressure on corporate earnings.
- Franco's Paul Brink warns investors that high rates are a catalyst for stagflation. That's going to cause banks to become even more restrictive. The bottom line:
- A vicious cycle of stagflation is beginning. Unlike the oil-related "dollarization of the world" that kept the US government from imploding in the 1970s, de-dollarization is now a global theme. All the American government can offer its citizens now are hideous wars that it loses and sanctions that ruin citizens both abroad and at home.
- Double-click to enlarge this key CDNX chart. Many gold bugs are junior mining stock enthusiasts. It's been a long time since the glorious days of 2002-2006, when small increases in the gold price were accompanied by huge rallies in most junior miners.
- I'll dare to suggest that these "days of glory" are upon investors again: A huge H&S bottom is in play on this daily CDNX chart, and an upside breakout is imminent.
- What about the stock market? Well, the 1980-2020 period of deflation was great for the US stock market and rates declined for 40 years.
- The 2020-2060 period will be about higher rates, gold, miners, and commodities. It's time for US stock market investors to forget about reading any more, "We are number one!" cue cards supplied to them by their cardboard government superheroes.
- It's time to focus on getting some cash out of banks, out of the stock market, and into gold!
- Unlike stock market investors in America who sell gold when stocks rise on strong GDP growth, smart Chinese investors celebrate higher stock market prices and strong economic growth with aggressive purchases of gold.
- A move above $34 for the Chinese FXI should trigger a hefty amount of such purchases… and it could be one of the catalysts that help push gold up to $2400!
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