The $2600 Plateau: Wait and see

 

Gold is resting at about $2600.  It's previous resting spot was about $1600.  So a decent move in the course of a little more than a year.  What is it waiting to see?

For one thing everything but meme stocks move in cycles.  The cycle for a meme stock is straight up and straight down.  If you see anything that moves like that you can be sure it is moving on pure emotion without any underlying fundamentals.

So what are the underlying fundamentals for gold?  When you know that you know what gold is waiting to see.

A) Central Banks of the world use gold as the rerserve currency of last resort.  Many central banks have been selling dollars (US treasuries) to buy gold. These include China, India, Russia, Iran, Saudi Arabia, Turkey, UAE, Kazakstan, Poland, Rumania, Brazil, Columbia, Viet Nam etc.  

These central banks have accounted for %90 of the gold move.  So gold is obviously waiting to see how this trend will continue in 2025.  Trump has threatened all these banks with Tarrifs if they continue.  But a large part of the reason they are selling dollars to buy gold is because of the threat of using the dollar as a weapon.  So threatening to use the dollar as a weapon should have the result of accelerating the purchase of gold in 2025 if the past is any indication.  We'll soon see.

B) Gold is used worldwide as the primary hedge against the ever diminishing purchasing power of paper currencies.  Especially the dollar, the Euro, the Yen and the Yuan,  Paper Currencies are diminshed in direct preportion to debt that must be paid off in paper currencies especially by printing more and more of them thus creating more and more debt.  

As long as the Globalization movement was providing a cover for long dated debt by keeping rates low the massive printing of debt seemed like a perpetual rollover game to those fortunate enough to procure debt at rates significantly below the real rate of inflation.  (Ie the very rich - especially the US Government)

Now that Globalizaiton has reversed and the new ethos is Every Country First and Soley for ITSELF, long rates have begun to soar despite the central banks cutting the short Bank rates.  Therefor all that debt accumulated in the Globalization debt orgy that lasted 50 years has to be rolled over at higher and higher rates.  

At the same time every countrys has gotten used to running on bigger and bigger deficits that also have to be financed at higher and higher rates.

This drives gold higher and higher as all the central banks continue to buy gold as a hedge against an ultimate debt reckoning,  It's inflate or default.  Central Banks always choose inflate.

So what is gold waiting to see?  Well for one thing it needs to see whether the president of the United States is actually as divinely appointed Angel of God who can take highly inflationary actions like imposing Tarrifs and cutting taxes on the wealthy while firing and deporting much of the working poor - and achieve deflationary results.

On the face of it this is so absurd it's not worth contemplating.  But enough people  believe in it that Gold must pause to see.

I don't believe that pause will be very long.  1 + 1 still equals 2, regardless of what George Orwell may have alleged.  At least in the realm of global finance.

So it's my belief the pause won't be all that long.  Maybe a few monts.   Maybe less,

We'll soon see.

BACK TO THE STARS

 

After a brief sell off gold is back near all time highs.

All in a week,

What happened?

Theory 1: The selloff was due before the end of the year to make some kind of a low for eight year cycle.  It could be that the low is in.  Which means cyclically we're due for three solid up years.  And starting from fresh highs that would be excellent news indeed for thos long gold.

Theory 2.  Take Trump seriously not litteraly led to a brief sell off on the theory that the economy should matertially strengthen.  In a matter of days it became clear that this mantra was purely wishful thinking amongst those billionaires trying to justify voting for the tax cuts.  It is already clear that the correct mantra is take Trump quite literraly. So the economy is doomed by tarrifs, massive spending and epic ineptitude.  And gold resumed its steep uptrend.

Theory 3. Russia's upping the ante with ICBM's in Ukraine put a temporary lift under gold.  This is possible.  But anyone who can't see that we're entering a new period of global instability regardless of any short term occurences is so blind that they'd best just stay out of the markets altogether.

There may be short term "deals" or "cease fires" or "undsertandings" along the way in the Middle East, and what Russia regards as the Eastern Russian provinces (what we call Eastern Europe) and with the new China/Russia/Iran axis and the West, but the violent tensions both in terms of trade relations and hot warfare around contested borders are bound to continue unabated throughout the decade.  

So all three theory have their merits.  

Yest all three theories point to much higher gold over the next few years.

THE BIG SELL OFF

 

G0ld has crashed from about $2750 to $2550.

Is it over?  Who knows.

At the start of the year most overly bullish analysts predicted that gold could go as highas $2500 this year before embarking and the real upswing at the beginning of the bullish cycle due to commence in 2025.

So as brutal as this drop has been we're just back to this year's most bullish projections. (By analysts like Felix Zulauf, I mean, not some BOZO on the internet.)

Some "analysts" confuse - as always - correlation with causation when noticing the drop timed with the election.  Then they tried to retrofit explanations like the Trump Pease dividend or the Trump return to American Exceptionalism.

Delude yourself all you like.

Or look at the math.

The tax cut extension will add 5 trillion to the deficit.  Normal operation of the government will add another 2 trillion.  That's without mass deportations that should add at the least another trillion.  And without the expansion of the military which should add another trillion.  And the addition of at least 2 new government cabinet level departments - the Orwellian super costly "Department of Government Efficiancy" and the massive expansion of ICE that should add another few trillion more to the budget.

SO we're talking about Many Trillions of new spending while CUTTING TAXES, and crushing revenues - all as the FEd cuts short rates - and LONG RATES ARE SHOOTING HIGHER.

This has never happened to the US before.  EVER.  LONG RATES RISE AS THE FED CUTS!!!!!!

It is happening because nonody is buying our debt but us.  That is the definition of monetizing the debt.  That is the cause of massive inflation, slow growth: STAGFLATION.

It is simple math.

And if you think a Peace divident will offset that you're smoking chronic.  Because Trump has already given carte blanche to Netenyahu.  And he has promised carte blanche to Putin.

Hard to see where the peace comes from there.

Maybe it will come by Magic.

Maybe.

But then maybe 1+1 will continue to equal 2.

If so, whereever gold ends up  in the short run, in the long run it's going much much higher.

GOLD AND THE ELECTION

 

There is one enormous economic factor affecting the future of gold that nobody in th Political Sphere is talking about.  

Nobody.

But it affects the future of gold in particular and all US economic activity in general more that  anytbing else happening in the realm of Global Economics.  And the policies of neither a Democrat or Republican administration are taking this massive Global Economic Factor into account.

All of our economic woes stemming from massive deficit spending and perpetual negative real rates have been masked for the last 50 years by that fact the we have had the world's reserve currency.  So no matter how much debt we incur the rest of the world needed to buy our debt in order to have dollars as a settlement currency for oil, copper, lithium, and every other commodity.

This is ENDING.  Because of the lunacy for Tarrifs and Sanctions every country has decided to ditch the dollar as a reserve currency.  Nobody is buying our debt.  Because nobody wants to hold dollars that can be confiscated.

That is why the long dated treasuries are rising even as the Fed is cutting.

But it is a gradual process.

UNLESS we double down on tarrifs and santions.

Then the rest of the world will double down on ditching the dollar.

It is not a simple unwinding because the Eurodollar market is vast.

However, it is the most destructive process to our economy we have encountered since WWII.

And it means that inflation will reignite while the yeilds back up and up and up.

Unless somebody in our government gets their head around this.  The US dollar is screwed.

And gold will go to the stratosphere.

Unfortunately nobody running seems to have any idea what I'm talking about here.  Plenty of people in the fincial community do.  It's hard to understand why the disconnect is so great.

But gold knows.

HOW TO UNDERSTAND THE GOLD BULL

 

GOLD BULL FROM 600 BC

How to understand this rocket up move in gold?  Normal.  Things in the gold market are absolutely normal. The Fed has lost control of the Gold market, which they had systematically supressed for years as the economy loaded up with mountains of debt.  Every time they try to crash gold the central banks of the world stept in and buy.  They just don't have the muscle to compete with that.

So gold is moving according to unrestricted market forces.  Normal.

And old measures like COT releases and Elliot Waves and whatever bizarro trading methods you think can predict gold movements are all out the window.  Because we are now in the End Game of fiat currency.

MMT -     Modern Monetary Theory - which basically says that you can print as much money as you want to fund whatever you want was once a fringe left wing joke.  Now it has been embraced by both parties.  Print Print Print.  That is the mantra of Republicans and Democrats alike.  And Europeans.  They're in the same boat with the Euro.  As is Japan with the yen

It used to work better here because we had the world's reserve currency wherein we would print debt and the whole rest of the world would buy it thus subsidizing our profligacy.  They needed it as a settlement currency for oil, and all other commodities.  

But that game is rapidly eneding as the BRICS+ seek to aggressively de-dollarize.  They have stopped buying our debt.  In stead they buy GOLD.  And they craft intercountry settlement agreements for commodities - and goods - that cut out the dollar.  And Gold is the stabilizing currency behind other settlement currencies.

This is the NEW REALITY

And it is only just beginning.  Becuase of the collassal stupidity of our politicians from both parties we are about to elect a president - no matter from which party - who has ZERO understanding of this new dynamic.  They talk about Tarrifs and Sanctions.  They talk about closing our borders and demonizing other countries.  They talk about ending Global Trade.  All of which causes the BRICS+ countries which accounts for 40 percent of GLobal GDP and a much higher percent of the Global Commodity Trade to DEDOLLARIZE at ever faster rates.

And as they dedollarize the Fed loses control - not only of the GOLD market - but much more importantly to the LONG END OF THE BOND MARKET.

When they cut - as they must - regardless of inflation because they have to bring down spriraling Debt Service costs - the long dated bond yeilds RISE.  Not fall.  Rise.

This is the ultimate catastrophe for the US economy.

If you don't understand this you really should do some work to understand it.

Because it is the key to everything that will follow.

Including the continued Ascendency of Gold.

It won't be straight up day after day.  (today it's down big time - take advantage gold in on sale)

But it will be straight up Year after Year.

Until a new monetary system is agreed upon - Globally.

That will take a while.

A good long while.

Meanwhile the GOLD BULL WILL RAGE,

GOLD SOARS AS REPUBLICANS REVEAL THEY ARE ALL IN WITH MMT - JUST LIKE THE DEMOCRATS

 

The Republican Candidate for President revealed he is all for scrapping pretty much all taxes - at least those on corporations, firemen, policemen, everyone in all branches of the military including national guard, coast gard etc, as well as on tips, anyone working overtime, social security, and pretty much everything else.

So, with no income, the Federal Government must simply print up trillions and trillions to pay for anything and everything especially all those concentration camps for the evil immigrants, subsidies to all oil drillers, deportation programs and an greatly expanded military.

Add to that a massive Tarrif program that will raise the price of everything stoking massive inflation and killing global trade while the President takes over the Fed and drops rates back to Zero.

It's no wonder gold is making new highs every day.

It's hard to imagine the Democrats being a whole lot more fiscally conservative.  Escpecially when many of them have expressed the opinion that MMT works just fine.  So at least everone agrees on that.  At least everyone in US Politics.

So I really wouldn't worry about much of a pullback in gold until someone with a modicum of common sense decides to run for office in this country.

Don't hold your breath

Gold and the charts

 

I'm  not a huge  believer in technical analysis.  I think you find an investment with massive cyclical tailwinds, buy and hang on,  Like Gold: massive global printing of paper money in the form of massive debt that must be serviced creating massive printing needs creating ever more debt.  Add to that a Central Bank buying regiem as the world de-dollarizes, add to that the rise of Greedy Violent and highly erratic Madmen taking over both Werstern and Eastern governments - and mix in two hot wars - well you get the idea.

But just on a tehinical basis. Gold looks amazing. It has not risen straight up - though if you're not paying attention that how it seems.  But in reality it is rising in a series of reverse head and shoulder patterns, that sometimes evolve into cup and handle patterns,  

This is amazingly bullish as it is technically quite sustainable.

This current upward thrust to new all time highs is a marvelous reverse head and shoulders pattern that looks like it could have much farther to run.  And even if it just flattens out for some time here that would make a beautiful cup and handle pattern,

You can see the myriad reverse head and shoulders on the charts above.  The top is longer term.