Jeff Clark, Senior Precious Metals Analyst, GoldSilver
JAN 11, 2018
Crypto and stock prices grabbed most of the investment headlines in 2017. But by the end of 2018, a different asset class is bound to spark investor’s attention.
There are multiple reasons for that, starting with the fact that no trend or bull market lasts forever. But it’s about more than just the prolonged run in equities and runaway prices in cryptos.
There are three specific developments I’ve been tracking that all point to 2018 being the year for a decisive breakout in gold…
Let’s play a guessing game… I’ll give you an economic and market scenario, and you tell me if gold would rise or fall in that environment. Here’s the scenario:
• Soaring stocks markets, with all major US markets making numerous new highs throughout the year.
• Raging bitcoin and crypto prices, captivating investors worldwide and dominating headlines, with numerous stories of investors getting rich.
• Rising real estate values, with some areas reporting frothy prices.
• Rising US interest rates, with promises of more from the Fed.
• Higher GDP in the US and many other economies around the world.
• Falling unemployment in the US.
• Higher wages, with the passage of a tax bill that spurred many companies to offer bonuses and wage increases.
• And last, falling gold bullion sales, so soft they reached a 10-year low.
So what do you think… would gold rise or fall in that set of circumstances?
Surely you’d guess the price would be weak, if not fall substantially. It’s the exact opposite environment for gold to do well. Indeed, there are plenty of examples from history where gold performed poorly in circumstances similar to these.
But with all that going on last year, the gold price ROSE! It climbed 12.1% in 2017, despite the many obvious headwinds.
Why was gold up in the midst of all the positive economic indicators and giddy investment markets?
As you can see in the chart, one reason is because the US dollar fell last year, which is usually inversely correlated to gold. This fact has a message for us: if you’re bearish on the world’s reserve currency like we are, then you can expect gold to do well as the dollar’s value continues to disintegrate.
But it’s more than just dollar weakness. Clearly, investors around the world continued to see the need to buy gold, despite many improving economic indicators and the everybody’s-getting-rich investment markets. Whether it’s overpriced stock and crypto markets, ongoing currency dilution, surging debt levels, geopolitical conflicts, USD weakness, or one of many other concerns, investors didn’t shun gold but instead were buying. They see elevated risks in markets, economies, and currencies and are flocking to gold in response.
This behavior is not one of confidence in markets or central bankers, but a sign of just the opposite. It says that investors are preparing for a reversal in the good fortunes outlined above—and for a decisive bull market in gold. Given the multiple financial risks that surround us, it won’t take much to tip sentiment back to gold. By the end of this year we think that’s exactly what happens.
Mike Maloney shows in his excellent new video that stocks, bonds, and real estate—the primary investment assets of most North Americans—are all in bubbles. And he believes those bubbles are likely to pop this year.
As just a couple examples from Mike’s video, he shows that…
• The VIX (Volatility Index, a general measure of fear in the marketplace) has registered a reading below 10 a total of 54 days in the last 20 years—and 46 of those abnormally low readings have occurred just since last May! The reversal to the upside could be stunning—and push investors into gold.
• The CAPE (Cyclically Adjusted Price-Earnings) ratio has now matched its 1999 level, the second highest reading in over 100 years of data. And you remember what happened in the years following that bloated stock market level. The CAPE has now registered a higher reading only in 1929. Yikes.
Mike states that next January will be a “very happy new year for precious metals investors.” If you haven’t seen what he expects to take place over the coming year, this video is well worth your time.
There’s an interesting development in the technical charts for gold, one that says a big move is on the way.
I turned to expert Dominick Graziano for an update on gold’s technical picture. He is a trader extraordinaire, and over the past several decades has amassed a seven-figure brokerage account from his technical trading. He is well worth paying attention to.
Since gold has been trading largely range-bound for several years now, I asked him what this may imply. Here’s his chart of gold’s monthly price, and note his comments.
The gold price continues to squeeze tighter and tighter on a monthly basis, a technical sign that implies a breakout is coming. The ADX (Average Directional Index) measures the strength or weakness of a trend, and you can see that gold isn’t trending but instead is building energy.
The longer this consolidation goes on, and the greater the buildup in energy, the bigger the breakout will be. In fact, Dominick told me that “long-term consolidations are the most powerful when they finally break out.”
The technical picture doesn’t tell us when this breakout will occur, but as he says a new all-time high could be in the cards if it breaks to the upside. You’ll notice other technical indicators give bullish indications, too.
The point here is that we’re inching closer and closer to a major move in the gold market. And you’ll want to be positioned beforehand to take full advantage. That’s what we’re doing—continuing to buy physical metal now in preparation of a major shift in the markets.
I’m frequently asked how much longer we’ll have to watch stocks and cryptos soar before our time comes.
I can’t pinpoint the day, but I can tell you when:
Gold will respond when uncertainty and fear creep back into the economy or markets.
Or any other surprise that catches investors off guard. The next event that causes financial instability will likely be the spark that pushes gold out of its current range and kick-starts the next surge.
Our job as investors and protectors of family wealth is to prepare for that shift. And the best way to do that is to worry a little less about the price and a little more about how many ounces we own and if they will be sufficient for the next crisis.