Gold Price: Is The Reaction Over?

November 3, 2020
President of Graceland Investment Management

It appears that both gold and stock market investors believe the winner of the US election (held today) will be more money printing and debt.

That’s almost certainly true, but what happens if the fed becomes less keen to continue its accommodation?

The US stock market daily chart.

A rectangle pattern is in play. That’s theoretically bullish, but the rectangle is formed with lower lows and lower highs.

That’s a concern, and it may reflect institutional money manager worry about a lack of Fed action in 2021.

The Fed’s actions over the past decade have been good for government bonds and the stock market, but they have come at a horrifying expense for Main Street.

In contrast, the government’s Corona crisis handouts in 2020 have helped both Wall Street and Main Street.

That’s because handouts to regular people have enabled them to buy products. That produces corporate earnings and revenues which benefit the stock market.

If the Fed were to curtail its handouts (QE and rate cuts) while the government continues theirs, the stock market could stagnate while gold would continue to rally.

This chart provides a view of the US stock market when stagflation began around 1966.

While history doesn’t repeat exactly, the winds of stagflation in America are blowing, much like they were in 1966-1970.

The stock market can do well, but only if government and Fed handouts continue. The bottom line:

From both a risk and potential reward perspective, gold looks like the best asset to own going into 2021.

The US government’s financial situation is obviously pathetic.

If the Fed doesn’t provide more QE, the government may be forced to essentially take over the Fed and order it to print money as the government sees fit.

The superb GDX chart. There are a lot of technical “green shoots” in play for the miners right now.

For example, after an enormous rally that began in March, a classic three-wave reaction has occurred from the August peak.

Also, the SIL silver mining stocks ETF did not make a lower low last week, while GDX, GDXJ, and GOAU did.

In addition, the GDX advance decline line is sporting a bullish non-confirmation with GDX.

The weekly gold chart. Note the 5,15 moving average sell signals; a price lull often follows the sell signal, rather then a steep decline in the price.

In a strong market, the price also often stops reacting well above the key support zone, and that could be the case now.

There’s not enough price weakness for me to recommend “back up the truck” buying of size here, but there is enough positive technical and fundamental action to do some modest buying and to predict that the current reaction has a decent probability of having just ended!

It’s important for investors to understand that if the Fed becomes reluctant to engage in greater accommodative policy, the US government is likely to “pick up the slack”, but it would do so with more handouts to Main Street rather then to Wall Street. That’s an important scenario for inflation enthusiasts to keep in mind.

The genesis of long-term stagflation appears to be in play, and while the gold community is fully prepared… with an allocation to gold, silver, and the miners, it looks like the rest of the nation will be joining the party too, but at prices that are much higher than they are now!

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Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualified investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:

Are You Prepared?

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Stewart Thomson is president of Graceland Investment Management (Cayman) Ltd. Stewart was a very good English literature student, which helped him develop a unique way of communicating his investment ideas.  He developed the “PGEN”, which is a unique capital allocation program. It is designed to allow investors of any size to mimic the action of the banks.  Stewart owns GU Trader, which is a unique gold futures/ETF trading service, which closes out all trades by 5pm each day. High net worth individuals around the world follow Stewart on a daily basis.  Website: www.gracelandupdates.com.

The total world's holdings of gold could be transported by a single solitary oil tanker.

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