When - if ever - is this magical gold breakout we keep hearing about?

 

Above is a 40 year gold chart. that shows the spike in gold when inflation got out of control in the 70's, and the 20 year downdraft as Greenspan and Reagan took advantage of Volkder's 19 percent interest rate to "Smooth out the business cycle" and make sure that every time the  economy slowed they simply lowered rates - simultaneously incurring more and more debt and encouraging more and more leveraged "investing" otherwise known as "gambling," or "malinvestment."

Then in 2000 a curious thing happened.  All the easy money pouring into companies with no earnings and wild claims about a tech enabled future crashed.  And some investors realized that gambling with easy money is not a sure thing even with the Fed at your back.

Gold began to ascend. Greenspan engineered a second massive bubble - this time in real estate which again burst and gold reached new heights.

Then we went into the Bernanke Helicopter money era of zero rates, multi trillion dollar bailouts and Quantitative Easing - which just means the Central Bank buys whatever assets it thinks will keep the risk markets moving upward.  In other words the purest form of Socialism ever attempted in a modern first world economy,

And a funny thing happened.  Gold momentarily sank and consolidated.  It's tempting to speculate that this is because the vast gambling class regained total confidence that the Fed could in fact keep the risk markets moving upwards forever.  So who needs safety?

But if you look at the long term chart above it looks simply like a healthy retracement of a blowoff peak, with a consolidation in a classic cup pattern.  In other words still a very healthy long term bullish pattern.

Both things can be true. Because everything in human society, psychology and natural environment seems to move in cycles.

And now we are still in the consolidation phase of this long term cycle.

So when will gold breakout? You'd need to consult a fortune teller for that one.

But after 40 years of a global first world debt binge; and 40 years of institutional malinvestment that most surely accompanies a debt binge. and the one major cycle that helped keep the inflation that accompanies a debt binge in check - Globalization - having reversed, it doesn't seem likely that we'll have to wait long for the primary long term trend in gold to reassert itself.

Whenever Jerome Powell, the current Fed Head, feels that rates have reached a point that the debt soaked economy can no longer function, he'll have to stop raising.  There a trillions of reasons why we will certainly have another liquidity crisis in an economy that reduces liquidity with this much debt.  And no serious reasons why we won't.

Then we return to easy money and bailouts and finacial repression. Or we suffer depression.

Either way, the safety trade looks more and more attractive.