Gold—Preparing for The Next Move
The comments below are an edited and abridged synopsis of an article by Alasdair Macleod
The global economy is at a crossroads, with international trade stalling and undermining domestic economies. Some central banks (the ECB, Bank of Japan, Bank of England) are still reflating their economies by suppressing interest rates; the ECB only stopped QE in December. The Fed and the Peoples’ Bank of China were tightening in 2018. The PBOC began stimulating in November, and the Fed has put monetary tightening and interest rates on hold pending further developments.
The downturn is likely to be substantial. Stalling trade disrupts the capital flows that fund budget deficits, particularly in the US, where savers don’t have the capital to invest in government bonds. Worse, foreigners are no longer investing in dollar-denominated debt, and they are withdrawing funds. In December and January, these outflows totaled $257.2 billion. At this rate, the US Treasury will have to fund a deficit likely to exceed a trillion dollars in 2019, and US markets will have to absorb substantial sales from foreigners.
In short, the US is going to face a funding crisis. To have this funding problem coinciding with the end of a credit expansion at the top of the credit cycle is a lethal combination, as yet unrecognized as the most important factor behind both US and global economic prospects.
Macleod discusses the technical and market analysis of gold’s position; defining the gold market and vanishing liquidity; and portfolio switching from fiat to gold.