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Gold Stocks Could Continue to Move Higher Amid a War Cycle Finale

Published 07/09/2024, 03:32 PM
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Gold finished last week strongly after the US jobs report was released. It’s soft again ahead of the key CPI and PPI inflation reports (scheduled for Thursday and Friday).

Gold is the world’s greatest asset and currency. It’s not only stood the test of time, but it’s been around for so long that it’s influenced by the biggest array of fundamental, technical, and cyclical drivers of the price.

These price drivers can flip without much warning. Investors can get confused; just when it becomes an accepted fact that gold pays no interest (in the West), so the gold price must fall if US rates rise…

Suddenly gold soars from $1500 to $2400 and does it while interest rates surge.

Gold Chart

The stunning US rates versus gold chart. In the deflationary environment that existed for 40 years from 1980 to 2020, gold rose when rates fell.

When the 40year inflation cycle began in 2020, gold began rising as rates rose, like it did in the 1970s.

Because of the huge trading volume on the Western LBMA and COMEX exchanges, gold will continue to have short-term dips if US jobs and inflation reports suggest rates could rise, but the main trend will now be determined by global demand versus supply.

Sadly, America’s obsession with fiat is the main cause of the empire’s fade. Because of the widespread use of the dollar, the government still has a chance to launch a gold currency that would be embraced by the world.

China and India would become the factories of the world (and are already destined to be so) and America would become a gigantic version of Monaco. The nation’s gold holdings would skyrocket… and so would the price.

Sadly, the US government has no interest in seeing the average citizen become as rich as the average citizen in Monaco. The focus is on fiat and debt and this focus (obsession) is creating very turbulent empire transition.

What about the 2021-2025 war cycle? Well, recent elections around the world have produced a modest reduction in government war worship, but…

In America, Trump has promised mass deportation of millions of illegal residents. He promised the same thing in 2016, but didn’t keep that promise. The issue, arguably, was logistics.

If he’s elected again with the logistics problem somewhat solved, is this time different, and if so, what kind of mayhem on the streets of America is likely?

Tens of millions of “stakeholders” are involved, because many of the illegal residents have started families and businesses with legal ones.

Given that most adults in America are armed, and given the eerie similarity of 2024 to 1864, gold bugs of the world need to be as open to a “big bang” ending to the 2021-2025 war cycle as to the fade that is indicated by other elections around the globe. The mayhem could create a parabolic move in the price of gold.

What about the miners? Well, the bizarre conundrum continues… the conundrum of technical sentiment indexes showing investor sentiment in the greed zone, while the average mine stock bug is in a state of nonchalance at best, and severe demoralization at worst.

BPGDM Chart

The key BPGDM investor sentiment chart. I’m reminded of the year 1994, when retail investors began investing in the stock market because interest rates had fallen under 7%.

Sentiment indicators became overbought then, but investors weren’t greedy. It wasn’t until 1998-1999 that rampant greed developed… and the market crashed.

GDX vs. Gold

The “gold bug conundrum” chart. When the maverick GDX (NYSE:GDX) ETF was launched in 2006, gold bullion was around $600/oz. Investors raced to buy the miners, with the goal of outperforming gold.

What transpired was one of the most bizarre events in the history of the gold market; gold stocks melted against gold… while gold surged from $600 to $2400. After plunging, gold stocks became locked in a de facto gulag. This is why sentiment indexes like the BPGDM can show sentiment as technically in the greed zone, while real gold stock investor “boots on the ground” show no greed.

The good news is that gold stocks have formed one of the largest and most bullish price patterns in the history of markets, and they have done it… against gold.

Gold Weekly Chart

I’ll dare to suggest that gold stocks (versus gold) are at a point in technical time that is very similar to gold in 2018. A huge inverse H&S pattern was in play in 2018, but most gold bugs ignored it. There was no excitement, and there was still none even after the big breakout over the neckline of the pattern.

Gold may be making a short-term peak in July, and that’s normal given the $600/oz super-surge in the price from the October $1800 area low. Like oil stocks have rallied many times when oil has fallen, gold stocks may stun analysts and continue to move higher, especially versus gold. As that happens, let’s hope gold stock investors show more excitement than bullion investors of 2018-2019 did and the good news is that… I’m predicting they will.

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