Gordon T Long

Gordon T Long

Global Macro Research | Macro-Technical Analysis 

STRATEGIC INVESTMENT INSIGHTS

HARD ASSETS

 

ARE GOLD &SILVER PRICING IN A US$ DEVALUATION?

It is our belief that Gold and Silver are now pricing in a decline in the US$ which will occur in Q4 2020. Gold is now trading independently of all other currencies, including the dollar. The dynamic between the US$ and gold has been broken, at least for the time being. 
 
Gold has been trapped between two opposing forces for nearly a year now. All along gold was slowly grinding higher regardless of the dollar, and that told us there was a sentiment change underway. But, day-to-day, week-to-week, gold was trIapped between two trades:
  • SAFE HAVEN TRADE: On the one hand we had the safe haven trade that’s been in place since last year’s seizure of the Repo markets in September – moving in concert with a strong dollar.
  • REFLATION TRADE: On the other we had the reflation trade, relying on the kindness of central banks creating liquidity and positive market sentiment. This caused the US$ to drop alongside gold as traders ran with the ‘happy days are here again’ trade.
Since late March the US$ has steadily fallen from its recent highs to lows not seen since late 2018. Meanwhile  in a “mirror” fashion Gold has steadily risen during the same period from its recent lows to new all time highs! 

 

Gold and silver are extremely overbought today. Popular sentiment has grown greedy and euphoric, with fear-of-missing-out buying flaring dramatically. That has forced both gold and silver to very stretched levels relative to their baseline 200 DMA’s. Such extremes have warned of up-legs topping in these bull markets, heralding re balancing selloffs. These essential selloffs erupting periodically in all bull markets should be embraced. They offer the best buy-low opportunities ever seen within ongoing bulls. They also keep bulls healthy.
 
Never forget, Gold is notoriously volatile and 25% corrections are historical norms! Though we don’t see this level of corrective / consolidation, we do fully expect a near term corrective / consolation to soon occur.
There’s a finite amount of capital available to chase any upleg, adding to its gains. When greed grows potent enough to fuel widespread fear of missing out, much buying is pulled forward from coming weeks and months. That soon exhausts available capital firepower to keep driving prices higher, leaving a void of demand. With enthusiastic buyers effectively all-in, the balance of capital flow power shifts to sellers.
 
1- 10 IMPLICATIONS OF A POTENTIAL COMING WEAK US$
If the US$ is to weaken significantly over the next 12-18 months, then investment strategies are highly likely to change to reflect the following: 
  • Cyclical over defensive stocks,
  • Value over growth stocks,
  • Value over growth stocks, 
  • Foreign over US stocks,
  • Emerging markets over foreign developed stocks,
  • Within Emerging Markets, favor the countries that are the most pro-cyclical, 
  • Precious metals & real assets over stocks,
  • Copper over gold, 
  • Credit over stocks, 
  • High yield credit over investment grade credit.
2- WE CURRENTLY ANTICIPATE A “CUP & HANDLE” PATTERN AHEAD FOR GOLD 
 
Adam Hamiltons’s rGold analysis along with Tom Luongo’s Double Top “CUP” (both shown below), suggests to us that we will see the “Handle” of a “Cup & Handle” Pattern soon develop.
 
 
GOLD IS PRESENTLY OVERBOUGHT

FOLLOWING DETAILED ANALYSIS IS SUBSCRIBER CONTENT ONLY

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