Zenolytics touched on gold recently. On June 12th in a note titled The Enigma That Is Gold In 2019, the following observation was made:
Late last year, Zenolytics put out an extensive note titled, Making The Case For Gold. Much of what was discussed in that piece remains highly relevant, if not more relevant today. However, the entire thesis behind gold needs two catalysts in order for the engine to function correctly:
- A U.S. Dollar that, at the very least, hints at some weakness
- Some type of event that impairs the risk appetite of investors
Catalyst number one in the article from June 12th came into play this week: The US Dollar got pummeled, losing a key support area in the meantime.
We all saw the reaction in gold. The yellow metal literally exploded, taking out numerous important resistance areas in the meantime, on some heavy participation by both bulls buying and shorts covering.
No need for catalyst number two to take place at this juncture. What should have been a dead giveaway to the fact that gold had significant underlying strength for the entirety of the first half of 2019, up until the breakout point this week, is that it didn't care that the US Dollar kept persisting in its strength. Gold knew ahead of time that the Fed would be sacrificing the US Dollar in order to preserve the strength of the markets and hopefully the economy, as a result.
All the meanwhile, global central banks are now pursuing inflationary policy that will favor hard assets over paper currency.
What we now know is that inflationary trade may come alive sooner than most think. Gold just told us this.
Hard assets will appreciate. Stocks should generally rise. Long end of the yield curve will explode.
The trifecta of developed countries pursuing inflationary policy, a newfound lust for protectionism in trade and exploding government balance sheets worldwide is not something anyone in the current investment generation has experienced.
Goggles and helmets required as we move deeper into the cave from here.
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