Gold and the Franc both function as safe haven assets, my hope has been that Gold would capture some of the flight-to-safety trade. It’s obvious that the massive move into Sovereign debt is purely a safety play designed to protect capital. And in both Europe and Japan, investors are even paying (through negative yields) for the luxury of this safety. Why then has Gold not rallied too? In the current environment, I would have expected Gold to benefit handsomely.
Gold is on the verge of beginning its 3rd Daily Cycle. On the surface, it’s at a 4 month high, but this shouldn’t be mistaken for long term strength. Rather, it’s just a natural peak in longer term Cycles. Given the risks to the economic environment, the lack of real demand for Gold makes me believe that it’s just not ready yet for a new and sustained move higher.
I very much want to believe that Gold will move into a new up-trending series of Cycles, perhaps even a new cyclical bull market. But we need to remain realistic and understand that Gold is currently at a point that has served as the top, and tipping point, of each Investor Cycle for the past several years. Since I subscribe to the notion that all things move in repetitive Cycles, I’m acutely aware that Gold is still, technically, in a bear market, and is poised at the edge of the down-trending portion of the IC.
Rising tensions in Europe are quickly spreading to global markets. There is mounting evidence that the world economy is decelerating at an increasing pace, and the current rush to safety could be just a prelude to a much more vicious decline in economic activity. Barring a general crash in asset prices, current events are likely to place a significant floor under the price of Gold. Although the current Investor Cycle is positioned for 8 weeks of weakness, it is likely that the weakness will come as a continuation of the 18 month sideways pattern, and not a new bear market leg down.
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