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Gold’s Dangerous Rally to New All Time Highs

The long time followers of this blog know that for this author to present the title above, something very bad might just be in the offing. Sadly, I fear this is truly the case as gold finally closed at a new all time high on Friday, December 1st, yet I feel a sense of foreboding rather than elation as the shiny metal of safety starts to behave as it should historically.

Charts are going to provide some major clues, but allow me to present a point of discussion to my readers that is not being discussed in the goldbug community.

In times of global strife and geopolitical instability gold has always been viewed by nations and individuals as the “safe haven” trade. The modern online glibsters will have one believe that digital or cryptocurrencies are the new safe haven, failing to realize that their physical application as a safety trade is only as good as the data havens they are stored on and the convertibility into the currency of the nation they reside in.

Since a government has the ultimate final say over conversion to practical usage, there is no safety in digital assets; including stocks, bonds, and any other creation of our modern financial system.

As gold is now at new all time closing highs, and not quite to the point where I would declare this “the real deal” yet (see: Another Suspect Rally in Gold or the Real Deal?) let us take a second to review the known risks possibly fueling this rally even higher.

1. Geopolitical Risk

The United States is financially exhausted as the enemies of our nation have figured out how to make our military-industrial complex suffer a death by 1000 cuts almost weekly. The US manufacturing base is incapable of manufacturing the necessary daily supplies for a sustained first world conflict as illustrated by the shortages the Ukrainian Armed forces are experiencing. Now that the Hamas-Israel War is absorbing any remaining supplies, NATO and the US are at all time reserve lows with potential conflicts simmering in Taiwan, Venezuela, North and South Korea, Myanmar, Ethiopia and Eritrea, Libya, and other hot spots currently at a low boil.

2. Financial Instability

I’ll just leave this here:

A reminder, from the Federal Reserve website on the Bank Term Funding Program:

The Federal Reserve Board, on March 12, 2023, announced the creation of a new Bank Term Funding Program (BTFP). The BTFP offers loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par.

Thus if a 30 year US Treasury or MBS if valued at 70 cents on the dollar in a regional bank’s holdings as marked to market, the Fed will loan them money at par to keep them from taking a loss on that asset. Unfortunately for the Fed, there is no indication that there are fewer banks using this facility, but more institutions needing this lifeline.

Add in the declining ability of consumers to obtain credit from these same banks, delinquencies and defaults rising, and the embedded inflation not counted by the government data geeks and a formula for disaster worse than 2008 is increasing with every passing month.

3. Political Incompetence

The West, also known as the EU, Japan, Canada, the UK, and the United States, has never looked more pathetic than this since the 1970’s. In the US our national political structure looks something like a perverse reality TV show with graft, economic illiteracy, and globalism is rewarded with real and imaginary votes while adults are told to sit down and shut up. Canada has decided become France’s twin sister and soon it will burn like Paris has been for the last two years. The UK is an economic and political joke. Most of the EU is financially and militarily bankrupt. And Japan is attempting hyperinflation while trying to sell its citizenry that all is well, please remain calm and pick a robot to date from the online catalog.

God help us all.

4. Four Charts That Support this Rally

I shall keep the commentary short as the charts speak for themselves. First and foremost, Dr. Copper seems to confirm that this long term rally in gold has legs and could easily go higher.

Never argue with the Doctor, he went to college after all.

Next up, the warning the US 10 Year Treasury seems to be sending a clear signal that the bond rally is short lived and will fade next year.

The break where the US 10 year in price no longer rallies with gold indicates that the shiny metal might just be benefiting from a true flight to safety as long duration assets, although liquid, are at risk of further price declines due to sporadic inflationary impulses.

Next up, the comparison to the S&P 500 which screams long term embedded inflation.

If this was truly a disinflationary, deflation episode for the long term, there should be a visible divergence developing in the price of gold versus the long term trend for US equities. Thus the markets believe the Fed ‘put’ is still intact and the gambling can continue unabated regardless of economic reality.

Lastly, the US Dollar index versus gold:

Gold and the US Dollar behaved normally from the 2007 GFC through the Sitzkrieg era of monetary policy. However after the pandemic, gold held its gains while the US Dollar imploded briefly. After the 2022 elections however, a noticeable uptick in a flight to safety trade in gold and the dollar began and despite recent price declines versus other major currencies, is still intact over the long term.

The question becomes this then:

What is the “something wicked this way comes?”

In this era of financial distortions created by financial chicanery, government interference and insider trading by central banks it is very difficult to point to one aspect which could cause the cumulative event most individuals are looking for.

Unfortunately, in this author’s opinion, it probably will be a long term combination of events from the 2024 Presidential election to the implosion of shadow banking in the West along with wars and panic breaking out on a global scale.

The next price levels to watch are around $2150 per ounce and a break above that level leaves the path wide open to $2500 per ounce and ultimately $3000 or higher. If this occurs, then the world we live in today will cease to exist and a strange new shift on the economic and political axis will have happened, leaving chaos in its wake.

The safety trade, dangerous as it is, appears to be alive and well.

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