Is this it?

It goes without saying that one of the main themes of this website is the gold market and its eventual breakout to new all time highs.

Before trying to decipher “Is this it?” We must define the drivers of the yellow metal that are in play at any given time.

These drivers are…

  1. The investing public’s confidence in central banks
  2. The general public’s confidence in governments
  3. The volatility of equity markets causing some investors to hedge
  4. The ability to find real yields
  5. Inflation
  6. Technical resistance and support levels

So what has occurred recently to suggest that this may be “it?”

The chart below has surfaced on twitter and it is perfect for the top 3 drivers. In 2015, volatility reared its ugly head in the stock market. Zone 1 on the gold chart displays the results. Then, President Trump was elected in November of 2016. One could say this created a confidence in government. The result was soaring equities and a sideways move in the gold market as can be seen in zone 2. Finally, in October the middle peak in the triple top of the equity market broke. This brought equity market volatility, and gold began to rise. The powerful thing about this zone is that it marks the beginning of the end of the central bank experiment. The public wanted, whether they actually did or not, to believe that FED balance sheet normalization was possible. This facade is finally coming to an end as the markets have woken up to the notion that the balance sheet will be expanding again, and we will be going back down to zero on the Federal Funds rate faster than we have previously believed.

David Stockman
Founder, http://DavidStockmansContraCorner.com . 

It was just March when the market was pricing in virtually no chance of a rate hike by the September FOMC meeting. Now, the probability is nearly 70%.

Let’s recap.

  1. Equity Markets are volatile
  2. The market now knows the FED will not normalize the balance sheet
  3. Do we have confidence in our government?

Well, we have a President playing tariff games with China and now Mexico. And to add insult to injury, Trump went rogue on this one apparently…

So, we don’t have confidence in our central bank, we don’t have confidence in our government, volatility is back, as rates get cut real yields will be harder to find, Bloomberg may have just marked the bottom on inflation from a contrarian perspective, and we have just broken out of the descending triangle. (I sort of sound like the anti-Kudlow…link below)

First things first. Let’s hope the breakout sticks, then on to test the 5 year resistance band around 1350-1370.