Is this Gold Rally the real deal?

 

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THere are two aspects to every market, including gold.  There's the narrative, and then there's the math.

The narrative for the gold market has been that a tight Fed  will drain liquidity and raise rates coupled with a war that is depriving the countries of the world of oil, fertilizer, feed, food and fuel, also draining liquidity and necessitating the sale of gold to pay for existential resources.

As for the tight Fed, there's been no sign of this.  In fact the Fed balance sheet is expanding.  There's been no rate rise, and no explicit talk of a rate rise from the Fed.  In fact the Government is guaranteeing that there will be no rate rise.  So why would there be?

As for the narrative about the war draining resources: that's true.  But the idea that perhaps Turkey and a few other squeezed nations are selling gold and that's driving down the price neglects the fact that many more central banks are loading up on gold month after month.  In fact, if anything the war is making it clear to many countries that gold is their only monetary protection against an incereasingly volatile, capricious, violent and warlike US, both through trade war and kinetic war.  The fact that they don't want to reveal the true measure of their gold accumulation, does not mean it isn't happening.  Traders at all the major houses are tracking purchases through export and import records and they know the quantities that China and other countries are purchasing is on the order to 10 to 20 times what they report.

That's the math of the situation.  Central banks are not momentum traders using hot money to create bubbles.  They represent a techtonic shift in the gold market, purchasing relentlessly as the price has fallen, in order to prop up the value of their currencies.

And over the last week oil has risen by over 11 percent and gold has risen about the same.  So now gold is rising with oil not falling.

So what's changed?

What has changed has to do with long cycles that govern long term movements in bull and bear markets.  Analysts like McClellan, and traders like Zulauf speak of the 8 year cycle in gold.  We are in the middle of two more years of dramatic bull move in the cycle that should carry to the end of 2028.  Now, I know without facile correlations this type of long term thinking sounds like voodoo. But everything, in nature runs in cycles.  Seasons. Weather.  Tides.  Human attitude "Turnings" as described by Neil Howe.  

And Mclellan tracks Gold cycles with uncanny accuracy.  Besides the 8 year cycle he desribes a 13 month cycle wherin mid cycle lows are made and the the bull run resumes.

That's what just happened.  And he called the turn with uncanny precision.

And when that happens all the correlations that the financial press and the talking heads use to describe the falling movement of gold become the same correlations that describe the rising tide of gold.  The oil price rising suddenly supports the rise of gold.  Rising inflation suddenly supports the rise of gold.  The Fed is now seen as obviously unable to raise rates and that supports of rise of gold.

But the fact is that we are in a period where the smartest traders - the central banks, the large guarded vaults that store tonnes for the billionaire class, and the biggest hedge funds all are not trading gold but amassing gold because it is the only financial asset with no counterparty risk.  And it has served as such for 5000 years of human history.  

The cycle has turned up.  Don't listen to the chatter.