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.