Gold settled last week at almost exactly $1770 per ounce – down a notch from the $1777 it closed at the previous week as the effect of the Federal Reserve’s interest rate decision (unchanged, completely predictable) wore off. And having wobbled as low as $1765 towards the end of the week, was it time to sell in May and go away? Well, gold has since headed northwards, above $1790 and in line with its highest point in 9 weeks. Suddenly, it seems that everyone is talking about inflation.
Of course, stocks are also seen as an inflation hedge (so long as they have pricing power) but Jordan Roy-Byrne of TheDailyGold.com – ShareProphets’ favourite technical analyst (mainly because he’s not just a technical analyst) – reckons gold is headed for $1825-1850, but after that it could just loll around or turn south once again in the short term (but be in no doubt, longer term he is madder than me). The “noise” (as Roy-Byrne calls it) from the Fed was that it is so convinced that any inflation spike will be temporary it is just going to completely ignore price data for the rest of the year. Well, good luck to it – but I remain convinced that it will be caught with its pants down and be left scarpering to play catch-up from behind its rear-view mirror as inflation gets out of hand. Either that, or it actually wants a run on inflation to whittle down the value of the mountains of debt. As such, gold remains an excellent place to be and Roy-Byrne is convinced we will see a major surge in the yellow metal in the next couple of years – although first we need to see gold outperforming the madness of the stock market.
Perhaps more encouragingly, silver is heading north too. Whilst gold toys with the $1800 mark, silver is having a go at $27 – just $2 short of the seven-year high posted last August as gold chalked up its all-time high of $2063. I guess that means either we are about to hit the top of this run or the price could explode higher if it gets to $30! My own view is that the market will wake up to what the Fed is playing at long before the Fed hikes rates. After all, the market is a forward-looking mechanism and typically runs 9 months or more ahead of the fact. So I’m a bit more optimistic than Jordan Roy-Byrne and believe that gold will head back up towards $2,000 by year-end.
There are all manner of reasons why I believe the gold-bull could return much sooner than some people expect: stocks are way over-priced in my view and if the current irrational exuberance continues for much longer the stock market is surely heading into crash territory – or at the very least a very sharp correction. And if the stock market is running for the hills, investors will need somewhere to park their cash. But at the same time I believe inflation will continue to firm, and that means that cold hard cash will be losing value – which surely increases the attraction of the yellow stuff. What if the famous V-shaped recovery runs out of Va-Va-Voom? What if the bond markets finally baulk at levels of governments debt? These seem to me to be pretty obvious developments, but what if there is a Black Swan? Taiwan, Ukraine for starters? A new Covid variant which evades the current vaccines? What about another big investment blow-up? – we’ve had a few tremors already but what if a really big player gets into trouble? I smell trouble. Sell in May? Stocks yes, Gold no. Plenty to think about as I warm another can of beans by the fire.
Filed under: gold, Bidstack, Trevor Brown, Location Sciences, Verditek, Tern, Nigel Somerville
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