Gold: Have No Fear, Inflation Is Here

Fundamentals

If you listen to fundamentals, you can quickly get lost. Often the fundamentals are the opposite of what the market wants to do. Since the pandemic hit, the economy was crippled and gold hit $2089. Gold seemed to anticipate the damage caused by the pandemic and waited to see how much stimulus would come into the economy. Many analysts thought gold would hit $5000 or go even higher. If gold had hit that level, the global economy would have been in dire trouble. Luckily, it did not. The flood of stimulus that came into the markets, with 10% of GDP mentioned as possible stimulus or $30 trillion, restored confidence in the markets. Supply then came into the gold market and prices fell to a low of $1673 on March 8. That level proved to be a pivot point for our proprietary Variable Changing Price Momentum Indicator (VC PMI) and in terms of a Fibonacci retracement level, and the market reverted from there back up.

Courtesy: TDAmeritrade

The fundamentals show a shortage of supply of gold and silver, yet gold and silver came down. Talk of a short squeeze also did not cause gold to go up. The VC PMI is a contrarian indicator, so when everyone is focused on the market going down, it recommends buying. When the market is rising, then it recommends selling. It goes against everyone’s expectations. In March of 2020 when gold hit $2089, everyone was talking about $5,000 gold, yet the VC PMI recommended selling. Now the sentiment is gloomy in terms of gold in comparison to Bitcoin and other assets. That's exactly when you want to buy gold. The VC PMI is telling traders to buy for the long term. We have established the low at $1672. The new low was higher, at $1677 and now gold is ready to challenge the supply above the market. The momentum of the market wants to test $1754 or $1758. We have a bullish trend momentum.

Precious metals are challenging what's real money. Is the US dollar, the paper currency, real money? Few people even carry paper money anymore. With trillions in debt, how much value can the US dollar have? All currencies share the same major flaw in terms of lack of real value and astronomical debt. Or is real money gold and silver, which have been considered money for thousands of years? Today we have a dual system: The fiat currencies that are not backed by anything but trust in various governments since 1971 when the dollar went off the gold standard, and precious metals, which have real hard value. We firmly believe that precious metals are an excellent area to build and retain wealth. Going off the gold standard has been catastrophic to the value of the US dollar. Its value has plunged since 1971, even as many individuals have become extremely wealthy in terms of paper money. However, the buying power of the dollar has declined more than 99% since 1971. A millionaire today is far from what a millionaire was in 1971.

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Disclosure: I am/we are long GDX.

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