GOLD - WHERE TO NOW?

 

Gold has had an historic run this year from about $2000 to $4000.  

So what's next?

To answer this you must understand what exactly is driving gold:

CENTRAL BANK  BUYING.  PERIOD. 

The central banks of ASIA, Eastern Europe, Central Asia, the Sovereign Wealth Funds of the Middle East, and to a lesser degree the Private Vaults of the Billionaire Class are responsible for the gold move.

It is not Investor Enthusiasm.  

Some misguided analysts might point to small lot futures buying being well up.  That's such a small percentage of gold buying that it doesn't even rate a blip  on the radar screen.   

Sure some big investment houses are now recommending a 20 percent allocation to gold.

But the average investor in the US has less than 1/2 percent allocated to gold.  And that is compared to a historical average of 2 percent in the US.

When the US gets back to its historic average we can start talking about Investor Enthusiasm.  Or FOMO.  Ha ha ha.  

How can you have FOMO when most investors are only vaguely aware gold in is a bull market?  And of those, when they hear the gold price is now $4300 on ounce, they roll their eyes and assume they've missed the move.

But have they missed the move?

Well, what is motivating the Central Bank Buying, and is that likely to continue?

What is motivating central bank buying is a response to the weaponization of the dollar, combined with the dollar's massive debt allocation in the world economy.

Viewed globally it is a dangerouly weaponized depreciating asset.

7 in every 10 economic global transactions involves the issuing, buying, serviceing and rolling over of Dollar denominated debt.

The US is currently running a 2-3 trillion dollar YEARLY DEBT on top of the 38 trillion of sovereign debt and another 100 trillion of unfunded liabilities.

And there are 400 trillion dollars of US debt denomiated derivatives floating around the global economy.

And this is all during a period of relative economic prosperity. (positive GDP growth at least by governement computed data)

What happens to this debt when the economy falters?  (As perhaps is doing right now)

What happens when the US Central bank must buy most of the US debt?  (as it is doing right now.)

Two forces have historically helped keep the US debt from being a US problem. 

1) Globalism has kept US inflation in check.

2) Nato-projected US military power as a force for global peace has lent dollar a sheen of benign protection for those wishing to invest internationally.

Both these have reversed with a vengeance.

A) Deglobalization is in full force and Inflation is already at intolerable levels for most of the US economy.

Even if inflation moderates prices still keep going up from intolerable levels.  And is inflation really likely to moderate when US debt issuance continues to rise at alarming rates?

B) The dollar has become a weapon wherein any and all US debt can be confiscated at the sole disrcretion of the US executive at any time for any reason.

And US support for Nato has been summarily withdrawn.

So - is the global central bank buying likely to continue?

Work it out.

Invest accordingly.