Gold Approaching Massive Cup-And-Handle Breakout, Plus Look at This Inflation Catalyst
The comments below are an edited and abridged synopsis of an article by King World News
The golden breakout: Gold has proved itself in the last few months. A cup-and-handle is often a bullish continuation pattern, and may also be a halfway pattern in this case. Now all eyes are on that orange resistance zone in the chart (included).
Crude oil—Inflation catalyst: Oil and gas companies have massively de-levered in the last couple of years. They now have the healthiest balance sheets in 30 years. Additionally, these stocks have never been cheaper on a free cash flow basis.
The recent influx of capital in this sector is at the center of the growth-to-value rotation in overall equity markets. This is likely to be a long-term trend supported by a higher-than-average inflation and cost-of-capital environment.
To address the recent comparisons with 2008: Today’s macro setup could not be more different than the Global Financial Crisis. Back then, capital spending for oil producers was at record levels after a decade-long bull market in natural resource businesses. Today, aggregate capex is historically depressed while the commodities-to-equities ratio is near 50-year lows.
It’s important to consider the cross-asset correlations during the stagflationary crisis of 1973 to 1974: Tangible assets and resource businesses rallied drastically despite the collapse in stocks and bonds. Yes, one could claim that the oil embargo event was quite unique for this comparison. However, investors should not ignore the list of key tailwinds driving the energy market today: ESG mandates, ongoing political efforts against commodity businesses, incredibly tight supply, rising geopolitical tensions, etc.