Gold made a significant low around the end of 2015. By my pro-inflation indicators, the gold price
gain reflects partial recoveries in the price of oil and other industrial commodities. The US dollar
has weakened slightly in value over this time frame. As gold cycled along. it has scored steadily
higher lows, but has not experienced a sharp price breakout until recently. Gold Price
The global economy has slowed in growth over the past year, and inflation has actually de-
celerated. It appears then that the recent sharp rise in the gold price reflects a multi-cushion
billiard shot. As the economy has slowed and as US-China trade war tensions have continued,
major central banks are signaling they are prepared to ease monetary and credit conditions as
may be needed to keep the global economic expansion intact if even at a more moderate pace.
There is a geopolitical issue as well that could have major consequences for economies and
inflation too. I naturally refer to the stand-off between the US and Iran, with Iran now
suffering economic decline as a result of formidable sanctions imposed on the Its economy with
special focus on oil sales, Its cash inflow lifeline. Iran has rebuffed talking about how to get
sanctions relief and has grown belligerent instead. The US and Iran have have experienced
skirmishes before, but now we have strong economic sanctions in play coupled with Iran's
strengthened military capabilities. Iran can now make big time trouble not only in the Gulf
but across the Middle East as well. Rising tensions not only reflect Trump "reality TV"
bluster but an Iran that is being seriously squeezed economically with no visible off-ramp it
could easily tolerate. There are several ways this issue might be resolved short of military
action, but rash behavior in the Gulf area could easily touch off an incident where tension
could quickly turn into a fire fight. Many interested parties will be at G-20 this weekend in
Osaka this and the US v. Iran has been forced on to the docket.
There are some prospects for higher inflation ahead, but since visibility of said process is
currently zilch, gold players have to be careful not to get carried away with enthusiasm just
riding the current hype and keep eyes peeled on the fundamentals as they unfold.
Note that the chart shows the strongest weekly RSI for gold in several years. It is overbought.
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!