There are three specific developments I’ve been tracking that all point to 2018 being the year for a decisive breakout in gold…
The original article has been edited here for length (…) and clarity ([ ]) by munKNEE.com to provide a fast & easy read.
1. Gold Should’ve Fallen in 2017—Instead It Built a Base
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 U.S.
- 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.
…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?
- One reason is because the U.S. 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.
- It’s more than just dollar weakness, however. 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 was 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 saw 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.
2. The Everything Bubble Is Coming to an End
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. In just a couple of 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.
Remember, no trend lasts forever. Since gold is inversely correlated to most major asset classes, it is more likely to rise when stock markets crash…
3. The Technical Picture Shows Gold Coiling for a Big Breakout
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.
When Will Gold Begin Its Surge?
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:
- 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.
Related Articles From the munKNEE Vault:
Coming off two successive positive years, gold seems to be building toward something. Fizzling or dropping seems unlikely given 2017’s surprise performance and the general state of global equity markets – most of which seem to be overpriced, over-loved and over the top. 2017 will be recorded as a transition year for gold; 2018, in my opinion, will go down as the year gold reasserted itself as a primal force in the global financial marketplace.
For those who believe in cycles, the timing is perfect for a strong run up in gold. Here’s why.
Gold just entered a new bull market but the price of gold has failed to garner any meaningful rally so, what gives? Why haven’t gold prices rallied? Well, it’s just a matter of time.
Because investment professionals are generally well informed, competing in an industry in which performance is king, one would assume any asset class deserving of rightful consideration would enjoy a fair hearing so it begs the question “Why Doesn’t Gold Get The Respect It Deserves?”
When trying to assess gold prices, it’s critical for investors to pay close attention to the Dow-to-gold ratio. At its core, the ratio says how many ounces of gold it would take to buy one share of the Dow Jones Industrial Average. It’s a powerful ratio when valuing gold prices and it isn’t talked about much in the mainstream.
The evidence is increasingly pointing to this potentially being a secular bottom in commodities and energy stocks in particular. In fact, we think 2018 will be the year of the commodity bull. Below is the evidence to support this forecast.
Each of the last three years have begun with gold rallies of over 10%. The stage is set for another such move in 2018. Are you prepared?
There are many compelling reasons why gold should outperform over the coming months.
The time is now to diversify into gold. All markets cycle, and a down-cycle for stocks and an upcycle for precious metals is on the doorstep. Take some of your profits and buy some undervalued gold.