Gold is Ready to Rumble
The comments below are an edited and abridged synopsis of an article by James Rickards
From an interim peak of $1,951 on November 6, gold fell to $1,769 on November 30, a 9.3% decline in just three weeks. This was the latest leg down in an intermediate-term fall from $2,063 on August 26, 2020. From that all-time high, gold fell 14.3% in three months.
The decline has gold investors on edge. Is the bull market over? More to the point, investors want to know if the recent turnaround is a sign of things to come or just a blip in a longer-term downtrend.
The short answer: The bull market is not over. Gold is poised to break out to the upside and to resume its push to $2,000 and higher. The recent rally was real, and new all-time highs are on the cards.
Four factors have contributed to the decline since August: rising interest rates; the election; the approval of Covid vaccines and new therapeutics; and technical and market dynamics. Jim discusses each in detail.
Today, Covid cases and fatalities are spiking, new lockdowns are coming and we’re heading into another recession; the pandemic may fade, but the economic damage will not; and markets are too complacent about the election outcome.
The effects of the new depression with be inter-generational. Most small businesses that closed will never reopen. Bankruptcies are skyrocketing. Job losses will be permanent. Lockdowns will continue.
The stock market has priced a recovery based on cap-weighted indices that favour tech companies producing relatively few jobs. The real economy of small- and medium-sized enterprises (+/-45% of GDP and 50% of all jobs) is flat on its back.
Finally, momentum is a two-way street. The same forces that caused gold to overshoot on the downside will cause the next rally in gold to overshoot on the upside. Buying begets buying, leveraged shorts will rush to cover and robots will buy for fear of being left behind.
Since August, gold has faced headwinds in the form of higher rates, political trends, rosy economic scenarios and leveraged momentum. Those headwinds are turning into tailwinds as the economy slows, rates fall, political uncertainty grows and momentum swings to the upside.
Savvy investors will buy gold in its current trough. They can enjoy the ride back to $2,000 from there, then much higher.