Next breakout in gold could start in late November
How long before the next breakout in gold? According to Jim Rickards in a recent Marketslant article, the next upwards movement will start in late November or early December. While this seems to coincide with the expected December rate hike by the Federal Reserve, Rickards doesn’t think the Fed is in a position to hike rates even once.
Using data that shows disinflation over the past nine months and a weakening employment picture, Rickards argues that the only way the Fed can reach its targeted inflation rate of 2% is by delaying rate hikes indefinitely and weakening the dollar as a result. While a weaker dollar happens to be a major tailwind for gold prices, Rickards says this is only the start of gold’s strong fundamental picture.
Geopolitical risks from North Korea, Syria, the South China Sea and other parts of the world continue piling up. The most menacing of these is the conflict between the U.S. and North Korea, which Rickards believes will culminate in a U.S. attack on North Korean military bases by mid-2018.
The article states that quieter tensions are also supporting gold prices, as the deteriorating relationship between the U.S. and Russia will accelerate Russia’s efforts to diversify its reserves away from the dollar and into gold – unlike the greenback, gold is immune to asset freezes and seizures by the U.S.
Rickards writes that China, another top buyer of gold, might be looking to lead the world back to some form of gold standard by allowing oil exporters to convert the yuan they receive from China into gold on the Shanghai Gold Exchange. Closer to home, a major market correction might be in the works as markets realize that the Trump tax cuts will not materialize.
All of this is overlapped by what Rickards sees as a major supply squeeze going forward. He writes that gold refiners are already struggling to meet demand, and private bullion continues to move from bank vaults into nonbank ones, reducing the floating supply available for unallocated sales of the metal.
Rickards points to a flash crash in June that came on the back of an instantaneous sale of gold futures equal to 60 tons of physical gold, adding that the largest bullion banks in the world couldn’t source this much gold with months to do it.
To him, the yellow metal’s current levels mark a last stop before a move to $1,350 and then $1,400. However, that might only be the start of gold’s next upwards trend. The article features a chart compiled by gold analyst Eddie Van Der Walt that shows gold prices move across two trends, one lower and one higher.
This pattern has become more pronounced since 2015, and the chart shows that another breakout to the upside or the downside is imminent. With nearly all of the evidence charting an upwards move, gold prices could be on their way to $1,800 an ounce. Regardless of what high gold reaches in the near future, Rickards advises investors to have their bullion ready before the next breakout begins.