Is Gold About to Drop 40% Like the Reagan Era?

by John Galt
November 11, 2016 18:00 ET

The answer is not going to endear me to my fellow goldbugs and precious metals dealers, but 2017 appears to be a good year to acquire gold at bargain prices.

First a look at the chart of gold on the continuous contract for the past 3 years:

gold_3yr_jgfla

The initial downtrend breaking gold below the key technical resistance level of $1280 per ounce was violated and then bottomed below $1100 in 2015. Then with the election uncertainty beginning in 2016 and the prospect of global conflict building month by month, gold rallied in a major uptrend through the past summer and terminated the move with a blow off top overnight during the night of the election.

Suddenly however, there has been a realization that the U.S. Dollar was strengthening also and that fact has started to impact monetary commodities like oil, gold, silver, palladium, and platinum along with emerging markets in a major way.

The action caused me to review another period, and by no means am I comparing Donald Trump to Ronald Reagan, but there is an interesting economic parallel which appears to be possible:

gold_jan82_dec84_jgfla

The high interest rate environment of the early 1980’s in conjunction with the massive economic growth stimulated the dollar to a point where precious metals and petroleum prices collapsed. IF, and I’m not 100% sure it will but at least 90% certain, this confirms then gold should drop around 40% with the lows somewhere between $790-$840 per ounce. The programs being proposed by Trump are not inflationary and the actions the Fed appears to be set to take seem to be deflationary thus in combination the U.S. Dollar index could easily soar to the 125 range.

This will be awesome for the U.S. consumer, especially if he follows through on the repeal of Obamacare and removal of burdensome regulations thus allowing the economy to achieve the 4-6% growth rate it has been constrained from achieving under Obama.

But don’t worry goldbugs, this too shall pass.

2018 is another story, and one that may well indeed be equally if not more historic than anything we witnessed in 2016 or the 1980’s.

3 Comments on "Is Gold About to Drop 40% Like the Reagan Era?"

  1. Brushfire | 14/11/2016 at 04:05 |

    “The programs being proposed by Trump are not inflationary”.
    How so? Issuing 30yr bonds and forcing the fed to buy them would seem inflationary. Unless they are counting on private buyers to purchase those at 3% when inflation is ~2% and rising. Why would anyone buy them?

    • Because the domestic pension fund industry will be forced to stay in compliance of new regs regarding yield and safety to steer them out of commodities and emerging markets.

    • Plus inflation will be delayed until late 2017 and early 2018; that’s when it starts to bite with a vengeance.

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