bruceyam
Long

Big Gold Rally Resume

FX:XAUUSD   Gold Spot / U.S. Dollar
Gold Breaks $1,400 Price Barrier and now what?

Gold price has been capped under $1400 since 2013. Last rally of gold is from 2001 when gold was at $252 when Gordon Brown sold the Bank of England’s holdings, since then gold rally all the way to $1900 fueled by behedging of gold miners. Since then the hedge book of miner is diminished if not empty.

These few years, the Central banks are gold buyer when compare to 2000-2011 when European Central banks are seller of gold .

There is a major game changer rules role out this year , the new Basel III rules are set to make gold a Tier 1 asset for commercial banks- compared to the Tier 3 ranking it holds currently. This means PHYSICAL gold will count as capital the same as a treasury bond. When gold is in Tier 3, only 50% of the value is recognized, but in Tier 1, 100% of the value is recognized. The value of gold is increase by 50% and the breaks of $1400 trigger a technical buy signal.

Will effective inflation pick up?
Gold has a industrial value, safe haven value and monetary value. It usually has a inverse relation with US dollar , means when USD is rallying, gold is diminishing and vice versa. It usually rallies in the same direction with USD when there is a financial crisis, gold is usually rally and so USD. Now market is expecting Federal Reserve will have rate cut this year, assume inflation didn’t changed, we have an effective inflation picking up and so the gold rally. But with the tariff imposed and de-globalization of supply chain means have price increase in supply size. These type of inflation is very difficult to be tackle with tightening of monetary policy , if the monetary polices becomes loose, it just fueled the inflation and gold will rally further.
In US a Philadelphia refinery was caught fire recently, it’s capacity refine 30% of the gasoline in US, means we might anticipate a high gas price in summer. The seeding of corn , wheat and soy beans were affected as the flooding of middle part of US are will light prompt a food inflation and especial the ASF in Asia in Autumn.

What happened if all central bank have negative interest rate?
Since 1970, Fed will cut interest rate 3%-6% whenever recession came, we are now with Fed fund rate at 2.5%, so if a 3% cut of rate, means Fed will enter negative zone which is already happened in Bank of Japan and European Central Bank . As we are know gold pay zero interest. But what if zero is higher that negative? We will have holding gold have higher interest pay than paper cash.
Looking for a series rally for gold in coming years. Good Luck everyone.
Comment: Gold has finished handsomely, expect a consolidation before breakout again.
when price come down, we will expect the ETF to offload some gold and push gold down even further. that will be to time to long gold again.

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