Gold Market Wire
News, analysis and commentary for gold traders and investors
Gold Market Update
Gold Enters a New Era
June 12, 2022 - (Gold Market Wire) - As we have been so want to repeat over the past months; there will come a time when the "inverse monetary proxy" theory - whereby the price of Gold and the value of the US Dollar negatively correlate - will come to an end. We've been flirting with that momentus event for some time, running hot and cold, but now it looks like we have made a decisive move.
To begin with, boring old Gold put on a show Friday to make even the most cyncial stand up and take notice.
On the surface - not much to write home about. A big day for sure, but isn't it just a continuation of the same old boring shuffle between $1800 and $1900? Actually we don't think so.
To begin with, the inflation that is now gripping the world, with a US CPI now seemingly stuck above 8% (and in an uptrend) is giving the lie to the notion that inflation is 'transitory'. It is anything but. Another move higher in Crude Oil/Natgas, and inflation is going to start ripping heads off. Let's not forget all that money printing since the GFC of 2008/09. It's going to come back and haunt people soon.
The second reason we believe we are at the start of a new Gold era is the performance vis-a-vis the US dollar. Friday's Gold action was solid, but should be taken in context against:
So, the Dollar soars and Gold moves up above the downtrend line(s). That is on bullish argument. Right now, as it stands, the Euro is hanging by a thread. In 'normal' times, that would mean Gold should be sold. But these are not normal times. To begin with, the much avoided subject of the Euro's faulty creation has now been exacerbated by one simple fact: the Ukraine war has been lost. For all the huff and bluff the West has thrown at this conflict, Russia is in the process of taking over large segments of the country. It may now transpire that Russia may become the de facto controller of Ukraine - rebuilding and integrating it into the Russia economic orbit. Europe's defences have been revealed as limited, both by political restrictions, and, even more worrying, by military/technilogical limitations and inferiority. Like it or not, that is going to impact the Euro.
Moreover, the US Dollar's advance has not been limited to a charge against inferior currencies (depending on your definition of 'inferior', of course) but has also been transposed across to Asia. Yes, the mighty "widow maker" the USD/Yen Cross, is now moving at multi-decade (Yen) lows.
What's more, given the Yen's history, when this market unwinds the effect is going to be one for the record books. Normally, you wouldn't sell the Yen given such a formation - but so momentous is the period of history we are living through... you would, and should. Because it really seems like the widow maker has taken its last soul. The ensuing pile in is going to be un-precedented. (Poor Kyle Bass. Looks like he was just a bit 'early'.)
And so it goes in the new world. Hang on to your hats, your Gold and your US dollars. The energy markets aren't finished with their run, in our opinion.
With the Russian's decisive victory against Ukraine now nearly in hand, the prescient question now becomes, "What will be the Western response?" None of the potential responses look likely to change the trends in motion at present.