Money Talks

December 11th,2020

Bullish Fundamentals of Gold:

There’s a reason why many things have bounced back so vigorously over the past week. Prices were slammed backward into the COMEX Dec20 expirations and now…

Over the past few weeks, we’ve tried often to remind you that the year 2020 is unfolding almost identically to the year 2019…at least in terms of COMEX valuable prices. COMEX gold fell from early September to late December last year then resumed its uptrend because the fundamental factors that had been driving price began to reassert themselves. an equivalent thing is occurring now.

And what are those “fundamental factors that are driving price” for the past two years? Here are just a few…

Let’s start with negative interest rates. You likely skills negative “real” rates are a key long-term correlation for gold prices. However, straight up negative nominal rates are the only most bullish factor ever created by man. Why? Because while it takes some additional thought and understanding to understand the importance of inflation-adjusted interest rates, almost anyone can check out a -1.0% sovereign bond or discount rate and think that there must be a far better distribute there somewhere. “Gold doesn’t pay a dividend” sure beats the heck out of “negative interest”.

But while we’re at it, let’s check on those inflation-adjusted or “real” rates. Market implied U.S. inflation expectations are at an 18-month high. this is often why the TIP ETF is once more trading near its own all-time highs albeit the 10-year treasury yield has bumped to 90 basis points.

Again, if you employ the TIP as a proxy for expected real interest rates, you'll see the clear correlation between this ETF and therefore the price of COMEX gold. Shown below may be a 15-year chart of COMEX gold in candlesticks and therefore the TIP as a blue line. make certain to notice that for COMEX gold to “catch up”, it'll need a move of about 10% back toward the highs seen in August.

And then there’s the U.S. dollar. If you measure it versus other fiat currency, its value has collapsed by 12% since the arrival of QE∞ in late March.

But let’s not just measure the dollar versus other fiat currency. Instead let’s also check out it on an absolute supply basis. Consider this:

But it’s not just the past twelve years that are in dispute here. Instead, check the pace of devaluation since the Covid Crisis began. See these tweets from Sven Henrich and David Rosenberg:

So look, there’s a reason why things have bounced back so vigorously over the past week. Prices were slammed backward into the COMEX Dec20 expirations and now they're rushing to catch copy . Combine this with dip buyers and their fear-of-missing-out trade and you get the renewed rally that we’ve been expecting. While it's unlikely to be straight up from here, it’s very likely that the worst is now behind us and each new chart hurdle that gets cleared will attract more optimistic buying.

With gold and silver prices finally emerging from their own tempest, it seems fitting that we’d close with a quote from “The Tempest”. After a robust rally followed by a multi-month consolidation, the valuable metals are now resuming their uptrend based upon resoundingly bullish fundamentals.

The year 2020 has played out very similar to 2019, and 2021 will continue the trend. “What’s past is prologue.”