I received an article written by a top quality technical analyst suggesting (the opinion was pretty general) that Gold was very close to a cyclical break-out. I responded:
article looks good… prec metals showing some buyers coming back, but I think this is mostly in combo with copper, zinc, and oil, all of which are econ based consumables and at low cyclical prices due to absence of industry capex that is unsustainable. For gold, there is neither extreme inflation or deflation to drive the price. The price in USD has lifted only because of USD falling against major world currencies. This analyst’s break-out is only going to happen should the USD have a major cycle break-down (after many months of weakness already) that would bring inflation concerns to the US due to reliance on imports. I’ll stick with the econ based consumable commodities for now.
The global economy is in good shape, but much more capex is required to sustain its growth. Futures trading does not deliver commodity products the global economy needs. Computer algorithms can direct the prices of consumables only for so long. Basic resources like oil, copper, zinc etc cannot be manufactured out of air; so, at some point economic supply-demand must be factored into price. If not, we are all facing a future of major recessions terminating in depression.
While there are definite reasons to invest in Gold, particularly as a hedge of some sort or as a collectible, it is not a consumable per se. During normal times — and despite all the naysayers, these are normal times in economic cycles — central bankers can fairly easily control the price of gold, as they have for the past four plus years.
As I see things, Gold (which is priced in USD) is working through a long cycle bottom that will not break to the upside unless and until the USD crashes on account of inflation. Over many hundreds of years, inflation typically only happens during times of world wars when basic materials are wasted on a massive scale — blown up as is the case — and we as of today have only the US position against the North Korean threat to be concerned about in that regard.
Now the USD and other major currencies could also drop against the price of Gold in a period of extreme deflation, which is also possible in these times of massive economic change due to technologies replacing labor. That is a world problem and we see the central banks trying to fight back with ever growing balance sheets comprised of too many intangibles. The problem there, with respect to the impact on Gold, is that trade-weighted currencies are remaining fairly well connected, thereby giving only a small boost to Gold priced against a basket of currencies.
So, for now, before we conclude that a break-out is happening, let’s watch the short-term cyclical price rise in Gold continue through a period of a rally in the USD. Let’s read the reports of the world’s major central bankers with respect to possible fact-based concerns of inflation or deflation.
Until I have a reason to invest, the short-term price of Gold is simply just another squiggly line on a graph.
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