The recent rally in gold has demonstrated that it is the preferred life preserver for central banks and investors during stormy times but it has yet to do the dazzling breakout like the cryptocurrencies which has many doubting its historical importance. The main thing to keep in mind that in periods of persistent inflation, not just hyperinflation, gold will be the leading performing asset versus those soft investments like equities and crypto.
Add in a dose of global instability, including the risks of global conflict and the formula is there for a repeat of the late 1970’s surge in precious metals. This author, however, subscribes to the “this time it is different” groupthink and fear that there is a larger problem ahead which might well cause either a rapid acceleration in gold prices in dollars, or worse, a massive decline.
The price of gold moved as predicted above $2050 per ounce but stalled after an intraday attempt to break through $2150 on a closing basis.
On the positive side, the long term slope is positive, but in the short term, a double top may have formed in the last two months of 2023.
Despite this massive rally off the October lows, Dr. Copper has only now begun to validate the rally in gold or has it?
During the strong copper rally in January of 2023, believed to be part of the reflation trade, a large number of traders and analysts thought that gold would follow suit as inflation was being re-ignited for a secondary wave of price increases in late 2023. This did not happen and during the October lows for Dr. Copper, it cratered the gold bulls hopes and dreams.
Heading into 2024, copper does not appear to be building a bull case for a steady or growing global economy despite supply shortages. The collapse of the “green” trade which was supposed to keep copper demand above normal for decades was nothing more than a fallacy and copper traders recognized that with the price collapse in May of this year. Will Dr. Copper once again take its role in leading precious metals up or down in 2024? That has yet to be determined but the price action needs to exceed the January 2023 price levels to confirm a move to new all time highs in gold.
Adding to the skeptics point of view has been the lack of participation by “poor man’s” gold, aka, silver.
The non-confirmation for silver since 2016 seems disturbing to this soul, then again, I’ve often believed that the combination of industrial demand plus use as a monetary metal should have the price well north of $50 per ounce by now. Perhaps the physical shortages are truly because of the suppression by the Fed and Western governments who want the metal to remain affordable for industrial uses and not used again as that average man’s protection against central banks hyperinflationary nature.
As we close the book on 2023, gold is poised to either break out to historic and terrifying highs or crash as our nation collapsed into an uncontrolled deflationary death spiral. The chart above of silver from March 1, 2009 until December 29, 2023 is starkly different from the gold chart as one can see:
The double bottom in 2022 is a positive divergence from the corrective nature of the metal and thus why I think after Q1 of 2024, an era of massive illiquidity and instability, gold will be poised to finally break above the $2150 mark after some seasonal selling followed by the big move to new historic highs.
Stay tuned for tomorrow’s 2024 prediction thread for more on that subject.