Gold: The Seasonal Lows Appear To Be In Place

Fundamentals

It has been difficult to trade the metals market over the past year. The fundamentals have been indicating that gold and silver should be shooting up, yet the markets have been going up and down a great deal. Emotions drive the markets to extremes, which we use AI to monitor and determine when the market hits those extremes and is most likely to revert back to the mean.

brass metal frame

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We believe the debt ceiling will have to be increased or the world economy will be at risk of a potential collapse. They also cannot increase interest rates or defaults will ripple through the global economy like a tsunami. A rise in interest rates will also cause a massive correction in the equity markets, which the Fed is unlikely to risk occurring. The high debt levels and massive stimulus are destroying the value of the dollar, which should cause precious metals to soar, but they haven't yet. In the long run, we believe they will.

Myrmikan Research published a key report on gold on October 15, 2021. The report argued that the Fed's printing of money should have caused precious metals to rise in price. They have not, but that may be about to change. One key is the Fed does not really print money, they create bank reserves. Banks use the reserves to lend against assets, which then increase in value. Increasing the price of a financial asset while holding its cash flows constant means that discount rates fall.

If discount rates fall, then construction is favored, such as what happened in China and Manhattan. However, the building leads to overcapacity, which then reduces cash flows, lowering consumer prices and causing defaults for banks, unless central banks back them up by providing new reserves. Over time, if this cycle of bailouts continues, more and more of a society's capital gets invested in poor investments. They become like ancient Egypt's pyramids: a lot of economic activity, but with little result and nothing produced in the long term.

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