The yellow metal is benefiting from the short-term liquidity push. But once the US liquidity situation changes, the global liquidity situation should worsen once again until central banks begin to stimulate in earnest and more decisively.
Thus, gold may add another short-term run towards the major resistance level of the mid- to upper $1300. We doubt it will break through anytime soon, but rather expect a correction or congestion below that resistance line when the US dollar puts on another rally attempt. Once that correction in gold terminates, we think a promising attempt at that resistance line will follow and a more decisive move to higher highs will begin.
We also expect gold mining stocks to participate and perform very well. This is in line with our thinking outlined in previous reports. The world economy is weakening and forcing fiscal and monetary authorities to act and support the system – they are so afraid of a systemic break down (or losing the election). Thus, in contrast to those who expect a repeat of the 2008 waterfall decline in equities, we rather think it will be a highly volatile sideways affair that could even include new highs next year in some indices.
However, we also think it will be highly selective on a regional, national, sector and individual stock basis. Thus, analytical skills to select individual sectors and stocks will be as important as timing skills. A buy and hold strategy applied on passive index instruments will only lead to disappointing returns.
We recommend accumulating gold on setbacks over the coming months.
We think the efforts of the authorities to underwrite the system – which will eventually work through the balance sheet of central banks – will be very beneficial for gold as we will see more unconventional behavior by our authorities in future years.
Moreover, we expect the conflicts of the two titans and others in trade and geopolitics to intensify in coming years, which should also be positive for gold. Hence, we recommend accumulating gold on setbacks over the coming months. We will certainly report when we think the train will begin to accelerate. Stay tuned!
Felix Zulauf is a strategic advisor to BFI Capital Group. This article is published here, courtesy of Felix Zulauf. It is an excerpt from his most recent Investment Comment.
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