Saturday, 3 August 2019

Gold And The Last Snowflake Before The Avalanche: Never Fight The FED... and ECB... and BOJ... and SNB.

Chart by Northstar.

Just a few short months ago we all were holding our breath witnessing the end of the brave scientific experiment performed by FED and their fellow visiting Central Bankers from the BIS Club. The surgery was conducted on the live global economy without any anaesthetics. Coming back to life from the last near-death experience after the Great Financial Crisis was very painful for most of us but worth it for a chosen few.

FED was "normalising rates". This normalisation was finished very abruptly last week after just 225 points level with FED cutting 25 basis points for the first time in 11 years and signifying the change in the trend. There is not a lot of room for any policy mistakes now.

"Growth solves a lot of problems", but what to do when it is not there anymore? US Dollar will be the designated victim and gold is already enjoying FED Summer Party 2019. Last week we had a lot of confusion between very well educated people among investors: the FED was cutting rates with markets at all-time highs. But the simple tweet about new tariffs brought crystal clear clarity for the direction sending US Dollar in a knockout, FED on the ropes and Gold pushing $1,450.

It is very important to note that Gold is breaking out from its bear market to the new 6-year highs when the US Dollar is hitting its own highs. With such powerful allies like POTUS, Currency War and race to the bottom will be very dramatic. POTUS needs a lower US Dollar to reignite the stalling economy.

All Central Banks are easing and flooding the financial system with liquidity again. We have discussed in depth the relationship between Negative Real Interest Rates and Gold already. Today I would like to provide you with my thoughts about the big picture and major drivers for the gold market in the form of a summer digest with links to our recent discussions. You can search for that last snowflake which will start the avalanche. I do not know what will be the last one as we have a hale storm already.

Negative Real Interest Rates have brought us to the last all-time high of $1,889.70 in 2011. Now gold will be climbing on the record pile of negative-yielding debt and we are heading to the new all-time high in gold. How high can we go this time? I would recommend the following of the brilliant @Northst18363337 for graphical technical inspirations, his chart is presented opening this post.

On my part, I can only add here that we are in a very good Gold Club company now having Ray Dalio and Judy Shelton among our members. They have their own audience: billionaires and Central Banks are buying gold.

Never fight the FED... and ECB... and BOJ... SNB. The list of most active in the gold market starts with China and Russia and now is wide open up to Turkey, Poland and the Philippines with many others in between. Central Banks are buying gold.

With gold pushing to the new highs, gold miners will start literally "printing the real money" - produce gold with higher margins. Gold exploration and development companies will provide the most upside for the investors who are making their homework right. Gold investing legend Eric Sprott is on the buying spree again. The chart above from Marin Katusa illustrates brilliantly what will be the next catalyst for the valuations of gold companies with the rising price of gold during The Switch. "Rise to the generational average of 0.23% in gold weighting in the S&P 500 could cause gold stocks to skyrocket." I should only add here that some special situations among gold explorations stocks may now provide a truly unique entry point when some motivated sellers among banksters who turned miners are finally fading out of their abrupt disgraceful appearance in the noble mining history. As always, do your own research, read legal disclaimers and consult your qualified financial adviser before investment decisions.

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