Over the past 20-month bull cycle, gold has proven itself to be the “go to” safe-haven asset and should continue to gather steam as the U.S. unemployment this week jumped to 40.77 million jobs lost. This equates to a loss in GDP of $10 trillion dollars leaving not only the U.S. but Global Central Banks no other choice but to continue the 122 global interest rate cuts we have seen since the start of 2020. Digging into the 2020 performance so far, Gold is up 14.0%, 30 Year Bonds up 13.89%, U.S. dollar up 2% and silver up 2%. The harsh reality is that the Fed can print money, but it cannot print jobs leaving us with what I expect to be 3 waves to get to $2500/oz by December 2021.
Looking at the weekly chart on gold since the beginning of the first wave bull cycle we can clearly see that as economic output contracts, fiscal outlays surge, leaving central bank balance sheets to double (see chart below). This should put pressure on fiat currencies forcing investors globally to frantically add gold to their portfolios giving us a steady rise.
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Where things become a bit trickier and many will question their judgement, is the second wave which I believe will occur in the 3rd quarter of 2020. This is when the economic reopening is fully underway in the U.S. and certain economic indicators will have a small “snap back”. With the Fear of missing out (FOMO) too much to handle, the near-sighted investor will dump their gold and chase equities higher which will ultimately be a costly mistake. See the problem is that irreversible damage has been done as indicated in the next chart below.
By now, we all have nice suntans and are experienced “Surfers” by the time the third wave begins. This is when the rebound in economic activity takes another decline and the reality sets in that many of these “temporary” job losses have become “permanent”. The Fed along with Global Central Banks will have to keep backstopping asset values as defaults rise. Interest rates will then decline further, and socialist policies become the new norm. The “FOMO” crowd that left us in wave two will be begging to get back long gold and this is when the blastoff occurs.
Over the past few weeks, I have watched this “FOMO” crowd chase the dead retail sector higher, the not profitable/highly risky banking sector higher, and panic their way in and out of a dozen or so different commodities. Remember there are many economic factors that could affect the direction of the metals markets so be sure to stay up to date on the developments by registering for a Free two-week trial of the Blue Line Futures Morning Express Research Reports by clicking on the link here: The Blue Line Express Two-Week Free Trial Sign up
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