S&P 500 And Gold Bulls, Get Ready To Meet The Bears

A: Thank you for the question. I‘ll answer solely from my personal perspective and won‘t comment on personalities. I understand your frustration with gold being unable to really move, but as I tweeted already yesterday, this months-long correction is one to wear you out, not to scare you out.

Please check my Aug 07 article written for Sunshine Profits called S&P 500 Bulls Meet Non-Farm Payrolls, where in the section "Calling Out Gold," I discuss the yellow metal‘s prospects. Compare that with my Monday‘s article Rosy February for S&P 500? Not So Fast to see how things turned out in the sector precisely.

It‘s with the same conviction that I say today again that this long consolidation in gold is in its latter stages. For now, gold is still rangebound, and I don‘t see a deflationary crash repeating that would bring it to said $1,500 – $1,600 levels. Definitely not. Looking at the real world around us, the Fed is becoming more active in expanding its balance sheet, new stimulus checks are coming (money flowing directly into the real economy, not sitting on commercial banks‘ balance sheets), and fiscal policy isn‘t tame exactly either. Inflation is making a steady return, and it‘s a question of time (think months) before it becomes broadly acknowledged.

In such an environment, a gold drop would be bought with both hands, thank you very much. Copper is rising, base metals aren‘t doing badly, and food price inflation is hot. We‘ve entered a decade of commodities, which would outperform paper assets. Who could tell me why gold would crash, even temporarily? What kind of mayhem in the bond markets would have to trigger that? Make no mistake, no single market moves in a vacuum.

Quite to the contrary, I look at gold and Bitcoin (BITCOMP) as the safe haven plays, with Bitcoin being the wild and volatile one. I am saying that Bitcoin has clearly decoupled, and once gold does the same, it means a vote of no confidence in the financial system. But this is not where we are currently. Gold is taking its cues from interest rates, real ones to be precise. The king of metals is also doing well during times of rising inflation.

Take the Fed keeping rates as low as can be for as long as eye can see (practical view of things), rising inflation bringing down opportunity costs of holding precious metals, and you have a great driver of higher gold prices. Given the economic policy steps, how likely is a deflationary shock now? Instead, look for the newly created money to keep entering the real economy, battling the high savings rate. Once you see the velocity of money to pick up, that would be the cherry on the cake. Gold unbound next.

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