“After a brief respite in the precious metals, we should see a continuation of the climb that began last year.”
For a number of both geopolitical and technical reasons, I believe we will see gold exceed the $1,375 high from last year, with the next major halt not occurring until $1,525. Before the technical, let’s look at the fundamental.
- Whether you’re for or against the guy, you can’t deny that our new President Trump is dividing the country. Conflict is ALWAYS beneficial to safe-haven assets like gold.
- President Trump has made no claims of balancing the budget, curbing inflation or introducing austerity measures. He’s just going to direct the same level of Bush or Obama spending in different directions. Bush doubled the debt, Obama did again, Trump is likely poised to do the same. His assumption is that he can boost the economy enough that growth outpaces spending. But without slowing the spending, it’s almost impossible at this point to do so, given the size of interest payments compared to GDP. I completely agree that free-market driven, economic growth does more to naturally stimulate an economy and Federal monetary injections, but at this point the damage may be too great.
- With that said, Trump is also focusing on increasing production and focusing on trade balance. The easiest way to solve that problem, and the one every President is most likely to pursue is “competitive devaluation,” making our currency less valuable compared to others, which makes our products relatively cheaper.
- Although I believe the US Dollar will inflate over the next 4 or 8 years, I still believe the dollar index will climb alongside gold. This is the black swan event in the metals market that I feel most people will miss, and will cause lost opportunities. Much of this has to do with trade deficit expectations and the size of the international market and their availability to consume American-made goods. On an international scale, I believe the dollar AND gold will both rise in 2017, just like 2018, but gold will outperform as it did last year. I may discuss this further in a future post.
- Interest rate rises. During the interest rate rises of the late 70’s to early 80’s, gold increased price over 2600%
Technically speaking, gold has recently bounced both long and short term Fib levels. Gold is also showing increasing volume as price increases, and decreasing volume as price decreases. After a brief respite in precious metals, we should see a continuation of the climb that began last year.
Looking at the longer term chart from 2001, the 2015 bottom coincided with a 50% retracement from the 2001/2002 lows, to the 2011 highs. There are a few possibilities here, as we also have a long-term trend line that crosses the 0.618 fib level very soon here. First, we could see a shock-drop in gold to the low 900’s, occurring some between mid 2017 and early 2018. For $900 gold?!? I’d mortgage my house and buy everything I can.
The other option, of course is that gold continues it’s climb, and reaches the low $1500’s within the same time frame. At this time, you could likely expect the public to take notice, kicking off the second wave of a bull market rush, with gold climbing as high as $2800 to $3200 in similar fashion to the 2010/2011 run up, and a healthy correction from there.
HERE’S A LOOK AT THE 20 YEAR CHART ON GOLD
HERE’S A LOOK AT OPTION 1, DROP IN GOLD TO LONG TERM TREND BEFORE OUR RISE UP
HERE’S A LOOK AT OPTION 2, A MORE AGGRESSIVE MOVE UP