For the week ending September 25, 2020:
- Gold (COMEX) was down $95 to $1,858.
- Silver was down $4.03 to $23.09. Yikes!
- The DOW was down 483 to 27,174.
- Tesla stock was down $34 to $407. Its all-time high was $502.
- John Mauldin expects $50 trillion in national debt by 2030.
The Fed assured us interest rates will stay low for years and they’ll continue QE4ever – printing dollars from nothing.
Rioters are doing their thing in many cities. Some are paid to riot and destroy. Is this a healthy sign?
Social unrest, riots, income equality, unemployment, and bipartisan stupidity will persist.
The Presidential race is interesting. Both candidates make promises and collect donations, as usual.
If Trump wins, debt will accelerate higher, government spending will rise, and gold prices will increase.
If Biden wins, debt will accelerate higher, government spending will rise, and gold prices will increase.
BUT WHAT ABOUT GOLD AND SILVER?
Gold (COMEX) closed on August 6 at $2,058. Silver closed at $29.26 on August 10. As of September 25, gold has lost 10% from its high and silver is down 21%.
What happens Next?
Option One – Bear Case: Gold hit a new all-time high in August, as it did in January 1980 and August 2011. Gold prices fell for years afterward. Prices could fall for years after this all-time high.
Option Two – Bull Case: Gold entered a long-term bull market after its low in December 2015. The current pullback is a healthy correction for gold’s ride higher from $1,182 in September 2018. The bull market will continue.
Option Three – Delusional Case: Gold prices will fall toward $1,000 as congress and the administration announce they will balance the budget, the Fed apologizes for creating a disaster in global economies, Democrats and Republicans make nice, and most rioters find jobs in California. Hot-button issues such as COVID-19, global warming, racism, and unemployment are solved, and CNN encourages a joint session of congress where all members sing Kumbaya and hold hands.
Option three is less likely. Let’s explore options one and two.
Option One Bear – prices fall for years. What SUPPORTS that option?
- The RSI (relative strength index) for the monthly chart of gold shows only two occurrences of an RSI > 70 (very high) after 2011. They occurred at short-term highs in August 2019 and August 2020.
- Other indicators suggest that the August 2020 high was an intermediate high. It could be months or years before gold exceeds $2,050 again.
- The dollar has bottomed (maybe).
- The Fed supports stock prices, not gold prices. JPMorgan and others have suppressed gold prices for years, as indicated by a $1,000,000,000 fine. Why change now?
Option One Bear – prices fall for years. What argues AGAINST that option?
- The Fed is “printing” dollars – trillions per year. Some of those newly created dollars are pumped into the gold market. The Fed will not stop printing. Individuals, pension plans, and central banks will buy gold to protect their purchasing power.
- The Fed will keep low or zero interest rates for as long as possible. Those low rates enrich the political and financial elite and boost the prices for gold and silver.
- The S&P 500 Index was 0.64 of gold’s price at the gold peak in August 2011. At the August peak in 2020, the S&P was 1.70 times gold’s price. Gold prices are not expensive – yet.
- Official national debt (in billions) was 7.8 times as large as the price of gold in 2011. At the August peak in 2020, the ratio of national debt to gold was 13. Gold is inexpensive compared to our outrageous national debt.
- The monthly RSI for gold reached over-bought conditions in 2006 and 2008. Prices corrected and powered higher for three more years. As in 2008, gold prices could rise from current over-bought conditions for several years.
Option Two Bull – prices will rise for several more years. What argues IN FAVOR OF that option?
- National debt has risen almost 9% per year since 1913. There is no political will to reduce debt, balance the budget, or adopt sensible economic policies. Instead, politicians push for Universal Basic Income, Modern Monetary Theory (the Magic Money Tree of government finance), free tuition, health care for all, infrastructure build-out, more social programs, and many other unaffordable ideas. National debt will rise at 8% to 9% per year, or faster, and gold prices will, on average, keep pace with that rise in debt. (Statistical correlation is 0.92 for annual data over five decades.)
- Gold prices hit an all-time high in August 2020 at over-bought levels as measured by many technical indicators. The current correction is healthy. Prices can rise to much higher levels. Over-bought can mean multi-year peaks or pauses on the way to new highs. Examples: Amazon stock, Tesla stock, Facebook stock, and many stock indices have been strongly over-bought in the past, corrected, and then rallied to new highs.
- Ratios for gold prices to national debt, the S&P 500 Index, M2, Fed balance sheet, and others suggest that the August peak was only an intermediate peak. Expect higher prices in the years ahead.
- A dollar bought 1/40th of an ounce of gold five decades ago. Today it buys about 1/2000th of an ounce. The Fed is devaluing the dollar and will not stop until something breaks. Gold prices will rise higher. Think $5,000 to $10,000 per ounce, or more.
- Our politicians and bankers want inflation, a devalued dollar, and higher stock prices. They are likely to get all three. Gold prices will rise more rapidly than stock prices.
- The dollar bottomed on August 31, 2020. It might strengthen for weeks or months. However, it is difficult to understand how insane deficits, crazy debt levels, zero interest rates, riots in the streets, unemployment, plunging GDP, and U.S. politics will inspire dollar strength for long. We shall see…
Option Two Bull – prices will rise for several more years. What argues AGAINST that option?
Gold prices hit an all-time high in August 2020. The other times (1980 and 2011) gold fell for years thereafter. (Doubtful gold prices will fall much, but it could happen.)
The Fed wants higher stock prices, inflation, lower gold prices and more power. Don’t bet against the Fed. (However, markets, fear, and greed are larger than the Fed.)
A runaway gold price suggests the Fed and U.S. government are mismanaging the dollar. They want stable or falling gold prices. Sometimes governments can’t get what they want because other priorities are more important. Some important priorities are: re-election, buying votes, loss of confidence in the dollar, low interest rates, escalating wars, bipartisan stupidity, payoffs for businesses and unions, expanded social welfare programs, the MMT monster rising from the swamp, and another pandemic lockdown.
One can argue that gold and silver prices should fall for years and bottom much lower. These arguments make little sense and defy history.
One can argue that gold and silver prices are correcting, the sky is NOT falling for gold and silver investors, and much higher prices lie ahead as the dollar is devalued further. I believe this scenario.
If your perspective is focused upon the next week or two, gold and silver prices look weak and could go lower.
If your perspective is focused upon 2021 – 2024, gold prices are correcting on their way to much higher prices.
In the short-term, gold and silver prices could fall further. In the long-term, they are going higher.
“There is hardly an economist today who does not condemn the Reichsbank for its inflationary policies. Yet they are supportive of similar monetary policies by the Fed, the European Central Bank, the Bank of Japan and the Bank of England.”
“The final collapse of a currency is always a flight out of government fiat currency into goods. That can be the only outcome from the continuation of current macroeconomic policies. But above all, it would be a mistake to think it cannot happen, nor that it will be a long process giving us all plenty of time to plan. The final flight out of paper marks took approximately six months.”
WHEN WILL GOLD PRICES BOTTOM?
Cycle analysis can provide insights, or as others suggest, wishful thinking. Take these cycle thoughts for whatever they are worth.
The last ten significant bottoms (green ovals) in gold prices, over the past 15 years, have occurred near bottoms in the 52-week (blue) and/or 80-week (red) cycles. Cycles guarantee nothing, but the 52-week cycle is due to bottom about December 2020 and the 80 week is due to bottom in October 2021. Shorter cycles suggest a bottom this October.
Prices could bottom in October, rise for several months, fall to another short-term low in December, and rise for most of 2021, with a correction low around October 2021. Or maybe not…
Another gold cycle chart to consider:
The daily gold RSI is already over-sold, so a bottom could occur any time.
- Gold and silver prices peaked in August at monthly and weekly over-bought levels.
- A three-month correction is reasonable and could indicate a price low in October. Another gold cycle low is due in December.
- Gold prices could fall for many months. But the current crises in politics, social unrest, pandemic worries, riots, Fed “printing,” unemployment, plunging GDP, revenue shortfalls at all levels of government, and so much more, suggest a rally in gold prices during the coming months and years.
- I see continued social, economic, and political trauma well into 2021. Higher gold prices will result.
- Charles Nenner expects a gold bull market until 2026. Why not?
- Gold and silver have been real money for several thousand years. Current dollars are debts of the Federal Reserve and are backed by nothing tangible. This is reason to worry about the value of dollars.
- The Fed is NOT all-powerful. If they were all-powerful, why do the economy and stock market crash about every ten years?