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Gold is Now the Buying Opportunity of a Lifetime

Nov 26th, 2016

$ Gold price background and fundamental analysis

The gold price was always fixed at a US$ price until 1971 when Richard Nixon delinked the US$ from gold, after which the gold price floated freely in accordance with supply and demand. After 1971 it became evident that the gold price moved in cycles coinciding approximately with the US presidential elections, and although subject to the law of supply and demand, and although also affected by many other diverse impacting factors such as war and inflation, it has always remained true to its characteristic 8 year cycle patterns.

In spite of this, one such powerful impacting factor is gold’s dual role as a ‘store of value’ and its ‘safe haven’ status which has the effect of increasing demand during times of financial turbulence. The world is in trouble financially, and the 2007/2008 global financial crisis took the world to the edge of the abyss. The solution to the problem introduced:

  • Unprecedented money printing which flooded world markets with liquidity in an era that developed into the longest period of ‘easing’ in history;
  • Interest rates that plummeted to historic lows with zero interest rate becoming negative in many countries that pertained to 35% of total global debt;
  • A concerted effort to avoid deflation and create inflation by stimulating consumer demand in the hope of creating economic growth;
  • An astronomical increase in total global debt which is unsustainable and now uncontrollable as debt increases beyond $230 trillion, which is already 3 times total debt during the 2007 global financial crisis;
  • Bubbles in the share markets, bond markets, property markets, etc., that are all vulnerable to collapse as the interest rate cycle turns up;
  • Massive devaluation of all currencies into ‘Monopoly’ money;

This has all not worked yet and the world still suffers anaemic growth rates, threat of deflation, low interest rates, and massive debt levels. This toxic cocktail destroys capital and threatens the banking system and in fact threatens the international monetary system itself. Just as Bretton Woods introduced the new international monetary system to the world in 1944 to establish the US$ as the international reserve currency, so the next global financial crisis will destroy it and trigger the creation of the next new international monetary system – because this one cannot survive much longer.

This is the financial turmoil that continues to propel gold on its ever higher price trajectory.

$ Gold price technical analysis

Consider the $ gold price chart from 1969 to today (courtesy of Stockcharts).

gold-1smalluntitled

Notice also the splendid blue support long term trendline increasing continually through time against the logarithmic Y axis.

Now consider the cycle low points in red with the number of years between, right up to Dec 2016.

gold-2small

Consider also a fascinating aspect of the chart in that it always takes 11 years from each low point to a later significant high point. Notice also therefore, that the low point at Dec 2008 will herald a significant high point 11 years hence at Dec 2019: A mere 3 years from now.

gold-3asmall

The correction in the chart from the all time high in 2011 to the 8 year low at the end of 2016 has built a massive foundation to propel the next leg up starting in the new year to the new high in 2019.

There are a number of fundamental impacting factors supporting this view, and these include:

  • The Trump victory in the US election has now come and gone;
  • The Trump policies are regarded as inflationary and good for gold;
  • All the fundamentals responsible for the turmoil in the world’s financial system (illustrated in the first portion of this commentary) have forced the tipping point upon us in the next global financial crisis which will be more severe than the last;
  • All the bubbles in the various markets (share, bond, property, etc) are being pricked as interest rates in the bond market started to turn up in July 2016, and the US Fed is planning to hike rates in Dec 2016;
  • The close correlation between the Japanese Yen and gold is in correction mode with the Yen weakening against the US$ at present. History indicates the Yen is required to reach a cycle low that penetrates its 50 week exponential moving average for the bull market in both the Yen and gold to resume. This has now occurred: Observe the chart below.

japyensmalluntitled 

Timing and extent of the $ Gold price rise

The $ gold price cycle low and next significant high point will occur in the period during or soon after Dec 2016 (cycle low) and in the period during or soon after Dec 2019 (cycle high), all in accordance with gold’s performance dynamics described in the above narrative since floating freely in 1971.

This cycle low in Dec 2016 will be in the vicinity of the previous false cycle low in Dec 2015 in a price range around $1100, and the cycle high will be a much higher price than it is now. Estimates based on the various different criteria range from $5 000 to $10 000 per ounce in 2019 and well above $15 000 in the following cycle high in 2027.

The next cycle low and high will be 8 years hence at 2024 (low) and 11 years hence from 2016 in 2027, in accordance with this logic.

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