Gold – The 2020 Gold Rush Is Temporarily Over

Conclusion and Recommendation

Source: Holger Zschaepitz‏ @Schuldensuehner, 4th of August 2020

Source: Holger Zschaepitz‏ @Schuldensuehner, 4th of August 2020

You can rely on the ECB and Madame Lagarde! Every week the balance sheet total is increased by about 10 to 30 billion Euros out of thin air. Last week a new all-time high of 6,360.8 billion Euro was reached. Total assets rose by another 9.4 billion Euro. (FXE)

Source: Holger Zschaepitz‏ @Schuldensuehner, 8th of August 2020

Source: Holger Zschaepitz‏ @Schuldensuehner, 8th of August 2020

The consequences of this extremely loose monetary policy can be seen on the one hand in the market capitalization of the global stock markets. Last week, the Bloomberg global stock market cap rose by US$1.9 trillion.

Source: BofA Global research, 7th of August 2020

Source: BofA Global research, 7th of August 2020

And of course, there are good reasons for this aggressive monetary expansion, as many economies were set back 10 to 27 years by the Corona crisis! Real GDP in Italy, for example, has fallen back to 1993 levels. Bank of America experts see Greece at 1997 levels and Germany at 2010 GDP levels, while the US is only seen to have fallen back to the 4th quarter of 2014.

Source: Holger Zschaepitz‏ @Schuldensuehner, 31st of July 2020

Source: Holger Zschaepitz‏ @Schuldensuehner, 31st of July 2020

However, the negative consequences of the aggressive monetary policy are currency devaluation, exploding debt mountains, rising food prices, negative real interest rates and the increasing loss of confidence among the population.

Source: Bloomberg, 3rd of August 2020

Source: Bloomberg, 3rd of August 2020

Without a question the sharp rise in the price of gold has been sending out increasing warning signals, similar to a clinical thermometer. The price is mirroring the interest rate of 10-year US government bonds, which are now yielding below minus 1%.

Source: SouGold Charts `R´US, 10th of August 2020

Source: Gold Charts `R´US, 10th of August 2020

For gold investors, this basically results in the best of all worlds. The probability that gold and especially silver will outperform all other asset classes except Bitcoin in the coming years is very high. The Dow Jones/Gold ratio has already turned in December 2018 and since then recommends underweighting equities and overweighting precious metals.

Gold – The 2020 Gold Rush Is Temporarily Over

Nevertheless, the risk/reward ratio in the precious metals sector is not very good over the next few weeks or probably the next three to four months. Gold and silver prices have recently risen sharply. Statistically, the movement is almost unique and definitely overdone. Although the desolate fundamental environment provides new reasons to save one’s hard earned savings into the precious metals on a daily basis, linear movements without counter-movements are extremely unlikely unless the global financial system finally collapses.

As it looks at the moment, the price of gold reached a temporary top at US$ 2,075 last Friday and should now slide into a correction lasting at least several weeks and most likely several months. In view of the blatant exaggerations, this correction should be very painful and deep for many, especially in terms of price. The realistic next price targets are around US$1,800, and between US$1,750 and US$1,670. In a strong bull market, often no more than one-third are corrected or retraced. If gold therefore typically corrects only 38.1% of the up wave from US$1,160 to US$2,075, the realistic price target for the correction sits at US$1,725.

Nevertheless, the correction, which is expected to last several months, is healthy and will ultimately provide ingenious entry opportunities. However, it is important to wait patiently and calmly and by no means to fire your powder too early. After a rally of more than US$900 within two years, gold has a lot to correct!

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