Gold had a really big up day on Friday and the central question for investors in gold silver and precious metals stocks is whether this was just a "flash in the pan" move that will not lead to anything significant or whether it marks the start of a much larger move. For reasons that we will come to, it is thought to be the latter.
It is clear that at least a part of the reason for the big gain on Friday was panic covering by "dumb money" who had built up big short positions and got caught out by the intensifying problems in the Mid-East. Gold's latest 6-month chart puts this move in context, and we can see that it rocketed into a zone of quite heavy resistance near the apex of the Triangle, shown that it earlier broke down from, with the sharp drop creating a"bear trap" that the aforementioned dumb money shorts got sucked into.
Technically, the magnitude of this move and the volume driving it strongly suggest that this is more than just a short covering rally and marks the start of a much bigger move.
The arguments against gold in the recent past are the obvious ones, which are essentially that how can it be expected to do well when both the dollar index and interest rates are advancing? While these arguments may still, to some extent, be valid over the near term, they are short-sighted as they fail to take into account that the explosion of debt has now reached the terminal phase, with wars being instigated in part as an act of desperation in order to provide an excuse to spirit trillions more dollars into existence with the National Debt now rising at a rate of a trillion dollars every six weeks or so.
What this implies is either a catastrophic sudden credit lockup or a further exponential acceleration of debt Zimbabwe-style into extreme hyperinflation.
The latter is the line of least resistance, especially as the more debt Central Banks create, the stronger they become, so we can expect this route to be the one that will be taken, and this being so even the most obdurate and stupid person ought to be able to understand that unbacked paper money will become utterly worthless and when this 40 Watt bulb lights up, there is going to be the biggest stampede into gold, silver and other tangible investments that the world has ever seen. Given the now vertical and terminal expansion of debt, this realization could come sooner rather than later and may even have started last Friday.
So let's watch to see if gold can break out above the upper boundary of the Triangle — if it does, the big move is probably on.
On gold's 5-year chart, we can see that it has been stuck in a giant rectangular trading range since the middle of 2020. There is a clear line of strong resistance at the top of the pattern approaching $2100, which is obviously very important, so a conclusive breakout above this resistance will be a strongly bullish development that should usher in a major bullmarket advance, and given the impending collapse of the West and its doomed fiat money system this move is likely to be of epochal proportions.
On gold's 20-year chart, the rectangular trading range that has formed since mid-2020 looks like a potential top, but in considering this chart, we should keep in mind that just because the price is near the top of it does not mean that it can't fly off the top of it.
Given that money creation continues to expand exponentially, which means that hyperinflation is inevitable, it is hardly likely that gold's nominal price in dollars will drop significantly — on the contrary, it can be expected to break out to the upside and ascend to unimaginable heights as the ordinary population heaps piles of fiat paper into wheelbarrows in order to go and buy a loaf of bread.
Originally posted at Clivemaund.com.
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Clivemaund.com Disclosures
The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maund's opinions are his own, and are not a recommendation or an offer to buy or sell securities. Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications. Although a qualified and experienced stock market analyst, Clive Maund is not a Registered Securities Advisor. Therefore Mr. Maund's opinions on the market and stocks can only be construed as a solicitation to buy and sell securities when they are subject to the prior approval and endorsement of a Registered Securities Advisor operating in accordance with the appropriate regulations in your area of jurisdiction.
