Gold Market Wire
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The Opposing Forces Commanding Gold
April 13, 2020 - (Gold Market Wire) - The Gold market is exhibiting a battle between two opposing forces right now.
One is the force that drags the stock markets of the world lower as the impact of a complete global economic contraction from the CoronaVirus shutdown of public commercial life starts to impact economies. This is no small force.
The world economy has been devastated by the reaction to the crisis. The discretionary consumer economy is, for all intents and purposes, dead. It is unlikely to come back anytime soon. Somewhat predictably the only seemingly unaffected aspect of the economic shut-in is in government employees, i.e. - the highly un-productive part of the economy; the part where employment is only a function of taxation. Equally, retired government employees on their pensions are doing just fine, too. They may, in fact, be ready and waiting in the wings to buy assets on the cheap from the wholesale liquidation of that part of the economy which relies on risk taking and hard-work for its (now former) maintenance. None of this is encouraging. The sense that equities are ready for another sharp fall seems palpable. The question that occupies us is whether another fall in equity prices will mean a further liquidation of gold. Last time, i.e. in the first quarter of the year, it meant only a partial liquidation. Gold held up fairly well. There will probably be another test before long. If gold starts to rise as equities fall, the second, opposing force in the gold market may take over and become pre-eminent. Fear.
That opposing force in the Gold market is actually predicated on the first one, i.e. the ever-increasing lack of confidence in the economy as a place where capital can concentrate and investment is worthwhile. But the public reaction is different. It's hallmark is a change in sentiment.
Instead of a simple aversion to investment, there is a stampede, on the back of fear, into a safe-havens which uniquely do not have government bonds on the list. The mood has shifted from dis-investment to survival. This is the collapse of confidence in government, and it is in this environment that gold becomes a barometer of that fear. That will herald a move towards cash alternative instruments, and that means gold. It will also means a fundamental repudiation of the financial system as savers and investors start to panic over the safety of deposits - and not just over their investments in stocks and bonds. A further fear will emerge of a potential currency cancellation and/or bank bail-ins. The result of this can also be a rush towards agricultural commodities - i.e. - survival commodities – as opposed to investment commodities, like copper, steel and the like. And within that 'survival complex' of commodities there is that last monetary refugee of a store of value, i.e. - precious metals.
Unless there is a dramatic turn around in the economic events of the past few weeks, we may well be approaching that second stage.
And right now the Gold chart could be signaling it.
Our job will be to assess the chart's gap. It has happened in a thin market, which should make us hesitate. But there is no denying the formation That has to be balanced against a second stock market blow-out, which could also lead to a further gold liquidation. If, however, equities fall strongly and gold doesn't follow suit, we are probably approaching the crisis point where there will be a manic rush into gold - and silver as well. When that happens we will emerge into uncharted territory.
It is worth remembering that we are closing in on the $1703 high, which, if breached, especially on a weekly closing basis, could set off a wave of buying. And it's also worth recalling the words of an old Gold investor from the 1960s and 70s in this regard: "There is no fever like gold fever."
When we reach that stage it will be time to assess at what point a partial liquidation of positions should be staged.