What Happened to Gold?
The price of gold recently broke hard above $1350 and reach the mid $1400’s. The price as we write this now is $1407. This move is extremely important as it breaks gold out of a 6 year range trade pattern. Gold has broken the $1350 mark for the first time since came down from its all time high in 2013.
What’s the Cause
Market fears have risen on the trade war fears with China as well as the recent military standoff between Iran and the US. I wrote months ago that for gold to break through the resistance line and stay there, threat of a hot war would become a factor. And that it would result from the economic imbalances between world economies. This is exactly what is happening.
As the tension heats between the US and other nations establishing new trade relationships, expect more of these potential physical conflicts to emerge. I don’t think the world is ready to go back to war just yet for many reasons. However, we are nearing a time in which war will become a real option for the world superpowers. And when that happens, gold will reach a new permanent price plateau in US dollar terms.
What is Next For Gold
I expect gold to retest the $1350 mark and maybe stay there for a bit before coming back up over $1400. Given the recession fears and the slowing summer season for most financial markets, things could calm down for a bit. While fear is being priced into the market, represented in gold most clearly in the rising GLD fund price, there are no major conflicts or economic crashes to keep it moving up. Gold does best when people are moving to safety in defensive positions.
Many, including Egon Von Greyerz, expect that the world recession will begin this fall. I think the recession has already started it’s early stages, starting late last year, based upon major economic numbers. However, recessions usually accelerate as they grow more mature and we are not to that point yet with this global recession.
A second wave of recessionary pressures will be felt as consumer sales continue to slow, and we see our first broad wave of consumer debt defaults. They will likely start in the auto and credit card sectors, where higher interest rates are prevalent. That will propagate into other debt markets such as home and business loans.
We are already seeing record retail store closures, and I expect the residential real estate market troubles will follow. Consumers can tamp down on impulse purchases at first, but as layoffs rise, more will be unable to pay their rent and mortgages. Expect leasing companies to begin reporting problems.
We will track these developments as they occur; stay tuned to Gold Silver Pros for further updates as the recession deepens.