A STRANGE CORRECTION

 

Well, it looked like a correction.  Then the gold price popped back up tp $2650.  The problem for those waiting for this correction to get in - is that the Central Banks of the World aren't waiting for a correction. 

 They're buying.

It used to be that the Fed could manufacture a good correction simply by backing the JP Morgan trading desk which would dump as many sell orders as necessary on the Future market in the thin evening session and then in the morning everyone long would panic sell into it creating a huge downwared move.

Now, they still try it but whatever size the JP Morgan trading desk can throw at Gold, the Central Banks of China, Russia, India, Indonesia, Poland, Mongolia, Czech Republic, Mexico etc simply say the equivalent of "Goody, Cheap Gold,  I'll take some of that!"  And the price pops right up.

It used to be you could even watch the COT (commitment of trader) reports and see when the commercials were net shot and the small traders were net long and predict a good move down.

But the Central Banks don't appear in those reports.

The game has changed.

It doesn't mean gold can't correct.  Everything does eventually.

It just means all the old ways of predicting the Gold movemnet are out the window.

Because the Central Banks of the world don't want to depend on the US Dollar when the US dollar is 

A) Drowning in debt.

B) Has been weaponized through Tarrifs and Sancations.

C) Is under the control of a potentially erratic, aggressive and unpredicatble Government.

This is not my opinion.  This is the open assessment of the BRICS+ Nations that are leading the accumulation of Gold while aggressively de-dollarizing their economies.

That doesn't mean the dollar will cease to be the Global Reserve Currency right away.  That's not possible with a Eurodollar market 5 times the size of the US dollar market.  But All of the dollar Reserves is held in the form of DEBT.

But it does mean that Gold has much much further to run vis a vis the US dollar - and all other currencies.  Because it is becoming the Global Reserve Currency that is NOT A UNIT OF DEBT.  It is a PURE ASSET.  It has no counterparty risk.  (And it can not be eroded by simply printing more units of debt - like the US dollar.)

So everyone has a choice as to what reserve currency they employ.  

Debt or a pure asset.

That includes every private citizen.

That includes you.

GOLD'S LONG AWAITED CORRECTION

 

Gold has finally started its long awaited correction.  It has barely taken a pause since it launched from under $2000, had a brief snooze in the $2300 area and then hit its current level of around $2600.

The Chinese announcement that they would pause in their massive stimulus campaign sent all commodities reeling.  And the fact that Israel has not yet hit Iranian oil fields or nuclear facilities has fanned  the eternal hope for a cease fire that has tempered bets on gold and oil. 

But also, just technically, Gold is due for some kind of pullback.  Many Americans are hoping against hope it is a major pullback.  Because either their technical models have been calling for one for a very very long time or - most likely - because they missed the entire run up.

Yes, most Americans have missed the entire run up.  It has been fueled by Asia - China and Japan and India,  Both by Asian Central Banks and Asian consumers.  Throw in Russia and many of the Mid Eastern Sovereign wealth funds and you have the recipe fot this type of move.

And now many Americans are hoping for a big pullback to provide and obvious entry point into this rabid bull market.

Maybe they'll get it.  But the markets rarely ring a bell (as the old saying goes).  Maybe this time will be different.  And maybe gold will simply dip a bit and then launch higher.

We'll see.

But a few things are completely obvious:

1. Israel will hit Iran.  Iran will retaliate.  Things will get much worse before they get better.  That conflict has no solution other than complete victory by one side or the other.  Because both sides have told us that is their position.  And it's not really relevant that those not directly involved (Like the US or the UN or Europe or Russia, or some 18 year old at Harvard) may have another opinion.

That sucks for humanity, but it's good for gold.

2. In the US both candidates have promised unequivically to explode the deficit.  The bipartisan policy center estimates that the Republican budget will increase the deficit by 8 Trillion (over what base?  Who knows.) and the Democrat budget will increase the deficit by 5 Trillion.  But that doesn't take into account things that have not been budgeted for like: Getting involved in the the 2 existing wars.  Dealing with the Immigration crisis.  (In the Republican case creating concentration camps for all the immigrants and then eventually deporting them which should add many many trillions).  Dealing with the massive natural disaster crisis that is developing from climate change,   (For which neither side has anything budgeted to address.)   And dealing with the massive homeless crisis that is affecting all US cities in red and blue states.

And it doesn't take into account the Global depression that will certainly result fromTarrif Wars.

This budget crisis which is really a DEBT CRISIS - sucks for humanity.  But is great for gold.

3. The Asian central bank purchase of gold is a prelude to a gold backed settlement currency to compete with the dollar.  We know this because the BRICS+ countries have told us that that is their intention. We don't know how this will play out but it will be dollar negative and gold positive.

4.  The US investor has not yet caught on to this megatrend that will last for at least the next few years.  When the US investor (That is to say the gambling class of the worlds' largest economy) catches on gold will recieve a massive boost.

So - enjoy the pullback while it lasts,  Whether it's a scary dip or a mild dip - it's a chance to buy cheaper gold.  Take advantage while it lasts.

I doubt anyone will ring a bell when it's over.