Technically and fundamentally, gold is poised to resume its magnificent rally that is taking investors into what I call a “bull era”.
The next FOMC meeting announcement is tomorrow. I expect the Fed to strongly signal more rate hikes and ramped up quantitative easing. There’s an outside chance that bank deregulation is addressed, but that’s likely going to happen in the next meeting.
Regardless, everything the Fed is doing is positive for inflation, negative for government bonds, and negative for the dollar.
Nothing is more terrifying to institutional bond market analysts than the prospect of significant inflation.
The US government is on the ropes. Rates are rising, QT is creating bond market liquidation, and wages are starting to surge. The inability of the US government to finance itself in an inflationary environment means rate hikes and QT are negative for both the bond market and the dollar.
Even though gold has rallied more than $100 an ounce in a very short time frame, the pullback action is very positive. It’s taking the shape of a small positive wedge formation. Solid Chinese New Year demand is likely behind the positive nature of this soft pullback. Global gold investors should be buyers at $1328, $1310, and $1300, with a bigger focus on gold stocks than bullion.
During deflationary times, bullion is the leader. During the inflationary times that are beginning now, mining stocks are poised to dramatically outperform bullion.
Global growth with inflation and the end for the great global bond market should create at least a decade of gold stock outperformance against gold. These stocks are essentially poised to enter a period of growth much like Main Street America experienced in the 1950s.
While all the current news is very positive for gold market investors, the best news of all may be coming on Thursday.
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