I did not post Gold on my weekly markets run down, however, the chart deems our attention.
Gold on the weekly chart, is about to test the 1360 zone. A zone which it has tested 6 times in the past and has failed to break above it. The momentum shows that we may test this level again in the next couple of weeks.
I expect price to struggle here, but if we do get the break of this zone on the weekly level it raises a lot of questions about geopolitics and economics, especially pertaining to my ideas. Nonetheless, even if we get a strong break of this level, I would like to see it maintain above this zone for the following week after the break to indicate the strength and possible continuation there after.
Gold is getting a bid mainly to the accepting notion that the US Federal Reserve will be cutting interest rates. Mainstream economic discourse sees Gold as the inflation hedge. Once the Fed cuts rates, the real rates will be negative or close to zero. That is: whatever the interest rate is minus taxes for dividends minus inflation. This is why your saving account in a bank may go up by 2-3% in nominal terms, but in real terms you are not increasing your purchasing power, it is decreasing.
Like cash, Gold does not provide a yield, but if yields are negative or close to zero, you may as well hold Gold. That is not the only reason though.
Studying Gold throughout economic history, Gold is more importantly a confidence crisis hedge. When people begin losing trust in the government, central banks, and the fiat money they hold, they go into Gold.
Periods of hyperinflation and inflation always come in periods of a confidence crisis, where people give up on their government and the worthless fiat/soft money. We are seeing this in Iran, Venezuela, Argentina currently where the domestic currency has inflated, but the price of Gold in the domestic currency has increased.
There is a huge psychological aspect of inflation that is often overlooked but is the key for Gold.
Many people will still run into the US Dollar, the Japanese Yen, and the Swiss Franc for safety during periods of uncertainty…this confuses the Gold bugs.
Again, when a confidence crisis begins to manifest is when people will run into Gold.
Central banks are beginning to cut interest rates.The ECB has announced that they may go even more negative on rates, and this upcoming week we have the Swiss Bank, who is sitting at -0.75%, and may follow the same path of the ECB declaring more negative rates!
People are finding out that these central banks are out of tools. They are pretending that what they are doing is actually working by going more negative. A way to maintain confidence. They cannot do anything except be buyers of Bonds, Stocks and Real Estate. Whatever it takes to keep assets afloat. This is the confidence crisis.
Add to the fact that many Eastern nations are buying Gold for their reserves. I have outlined reasons why. Firstly, as a way to combat the US Dollar (settlements in Gold), but they could even be preparing for a return to classical economics. This cycle of classical vs mercantile/keynesian keeps repeating.
This is the Gold-Silver Ratio. As you can see, we have not been this high since the Global Financial Crisis of 2008. I am looking for a break of the uptrend, and a move lower. This signals higher Gold, Silver and Precious Metals prices.
Remember, I have said I believe the US Dollar will go higher first, and this will cause all the problems in the world to exacerbate. Some are saying to themselves, “Wait. Gold and the Dollar have an inverse relationship right?”
Yes it does, but look at the chart of the DXY and Gold in 2008. They moved together in tandem. Again, Gold being the confidence crisis asset.
I expect this to happen again. We will see both the US Dollar and Gold move together. It may not happen yet, but it seems we are getting closer. So keep an eye on Gold here. It is telling us that rate cuts are definitely coming, and it may be alluding to a potential confidence crisis.