Gold is back in a short-term bull mode with prices creeping up from $1,500 over the last three days of trading.
As for the big picture? A lot could happen, sure, but it is looking good.
The problems causing renewed interest in gold as a hedge and as a safe haven have no clear resolution.
To sum it all up, five major trends are in place that are acting as bullish catalysts for gold trades. Combining them has an amplifying effect.
We’ve talked about a lot of this but we — and many others as well — tend to pick out a single aspect at a time. Go ahead and insert something about trees and forests here if you will.
First up, we have the newly dismal interest rate outlook. A second cut that the Fed hadn’t remotely considered just months ago is all but baked into the market.
The U.S. isn’t alone there. Europe’s constant struggle to mask weak economies may lead to headline fatigue, but it is very real.
Nearly $17 trillion of bonds are in negative territory, and this is where almost all the action on that front can be found.
The second trend is complex but we’ll keep it short and sweet. Trade wars between the #1 and #2 global economies are not going anywhere. They haven’t gone anywhere in years now. They won’t go anywhere for years to come.
The third trend goes hand-in-hand and should be pulled out from the second. Even without its exposure to the U.S. market weighing on it, China is going through a long-term growth problem.
Banks are loaded up on bad debt. A shadow debt market is even worse and even harder to get data on.
The country depends on outdated and dirty industrial operations that are renowned for treating workers like dirt.
Banks and financial companies are forced to prop these up, along with making sure the sky-high urban property markets don’t deflate.
And, let’s face it, the easy economic expansion days are long since over. Going below 7% growth used to seem like a “canary in the coal mine.”
Now it is 6%. It will be 5%. It will be 4%. The question is how long that takes and if the entire propped-up system to finance this can down-shift without the gears exploding.
Fourth, we have the rest of the world. The U.S. is at odds with Iran and half the Middle East. Global energy is clearly a new front for “asymmetric warfare” and/or terrorism.
Just on the trade front, India is probably getting pretty tired of us. Canada and Mexico are as well but they have to play ball longer because of their sunken costs in the old NAFTA.
Plus we’re seeing rifts only widen with most of Europe. Hell, most of Europe is seeing rifts growing between each country and the rest of Europe. All right as a messy Brexit could completely ruin a financial scheme that sees a lot of personal and corporate capital flow through London.
Finally, and most importantly, people are just buying a lot of gold. Individual investors yes, but institutional investors and central banks as well.
Central banks purchased a record amount of gold in the first six months of the year. China, Russia, and Poland seem to be leading the charge.
All told, central banks accounted for nearly one-sixth of total demand.
With the market volatility, geopolitical turmoil, and dire warnings from just about every reputable source on a slowing global economy, where do you think that goes from here?
Will there be pullbacks? Of course. Some will be the day-to-day or week-to-week market sentiment and hype. Or just some profit taking.
But think about that. The markets seesaw between trade tensions easing and escalating between the U.S. and China, according to the MSM. Yet the countries aren’t even talking to each other in a meaningful way.
Don’t mistake the churn for the trend. A whole lot has to turn around to flip the script on gold now. And as we’ve all seen, there is no one who is willing — or potentially even able — to do that any time soon.
With market valuations still sky high, everyone is looking for the next big thing. Maybe they should take a serious look at one of the oldest sectors around. The potential profits are staggering.
