As the USD began to break out of its two year range, it became clear that gold may experience a much needed pullback. Speculative excesses and inflows were out of hand and gold needed to shake the gamblers out. I have written about the coming pullback that could take gold deep into the $1100s a lot in this blog's short life. The dollar's rampage higher combined with a giant sentiment shift post election has given gold investors a wonderful opportunity that will solidify in the next month. The dollar's bull run is not over thanks to structural and fundamental tailwinds, but its current boost from 'Trump miracle' sentiment will die - allowing gold to withstand the dollar bull with much more resilience, and perhaps advance in tandem. The dollar may have just entered a pullback after tapping a key Fibonacci level which lines up well with gold's technicals, positioning, and sentiment.
The market's euphoria over Trump's coming economic miracle has created a great opportunity for gold investors. When viewing the market through an Austrian framework, one can see that the US economy will not go from a artificial "boom" caused by artificially low rates, credit expansion, and malinvestment - to a hot economy with real productive growth, without pain. There is always pain on the back end of a Fed induced bubble and this bubble will experience its fair share. We are late in the credit cycle with much higher debt, much lower rates, and much more systemic risk as the complexity inside the financial system has grown substantially. This all suggests a very painful bust and a need for even more radical intervention. This cycle's intervention may include fiscal stimulus, QE to buy bonds of all types (perhaps equities), and a form of eurodollar QE to provide extreme swaps to relieve dollar pressures on other markets.
The market is pricing in the US economy moving from struggling bubble economy with the headwinds I just outlined, to a sustainable, 3% plus growing economy, with zero pain and the "good" inflation. With rising rates, high govermenment and corporate debt levels leveraged to ZIRP, deteriorating demographics, falling productivity, falling velocity of money, and falling monetary heroin - Trumpflation's headstone will read as low as 2016-2017.
To be clear buying gold right now for a long term investor will be a great buy in my view, but I will illustrate where I see the a potential bottom area and why gold is ready to turn around in the next month.
Here are the reasons I am growing very bullish:
Hedge Funds Selling
CoT Shaking Out Gamblers
GLD Outflows (over $3 billion net since the election)
Physical Demand (charts from ZH)
So....Where to Buy?
I have long written about $1135 as my floor for price in this move and the closer to that level I can buy the happier I will be. I identified two levels as illustrated in my zoomed in chart above, but as a long term gold investor, I drew out the zone to cover the entire area because I am happy to buy anywhere in this zone. As you can see on the continuous chart above, price kissed the zone and advanced this week. I would expect price to possibly try the zone again, and perhaps reach the $1135 area if the "Trumpflation" theme keeps its legs for a bit longer.
Bottom line: The idiocracy-markets post election are giving you an opportunity to buy an asset with a stronger fundamental case than it had at $1375, or $1875 for that matter - on sale. We desperately needed to shake the rotten fruit out of the tree and we are almost finished purging the weak hands, so this month will be time to buy.