gold, page-82849

A view (extract) from Angus Geddes of  Fat Prophets...possible move to $3000 for gold


The penny is dropping
Good morning

Wall Street’s main indexes rose on Wednesday after Disney delivered a strong quarterly profit, and with sentiment boosted by signs that a coronavirus fiscal relief package was imminent. The other major developments were another 0.6% fall in the US Dollar index, which kicked off a strong rally in commodities and precious metals along with the crypto-currencies which have all broken out on the upside and lifted between 3% and 4%. Gold was up 1% to north of $2050, while silver and the other PGMs climbed between 3% and 5%.

Congressional Democrats and White House officials were set to resume negotiations on coronavirus relief legislation on Wednesday, and are aiming for an agreement by Friday. There are really no major fundamental differences on both sides of the house with both Republicans and Democrats broadly in agreement over most of the relief package. A deal should be forthcoming soon.

CNBC’s cited recent Fed statements, and that officials will be solidifying a policy outline that would commit the central bank to low rates for years as it pursues an agenda of higher inflation and a return to the full employment picture that vanished amidst the coronavirus pandemic. Analysis of Fed statements imply that a move of the “average inflation” rate would be tolerated above the usual 2% target. The Fed is not going to raise interest rates until both the inflation and employment targets are hit. The policy initiatives could be announced as soon as September.

Silver’s breakout from a decade long range has been compelling. We hold significant exposure to silver in the Fat Prophets Global Contrarian Fund via holdings in the Global X Silver Miners (NYSE:SIL) and Junior Miners ETFs (NYSE:SILJ).

Silver




This underpins our view that the Fed will “be significantly more dovish than during the last cycle in 2008/9 and with a combined fiscal response from the Government the stage is now set for a breakout of inflation within 12 months.

I made this point yesterday with David Kosh during an interview, and why this time around is different to what we saw during the GFC. This time around Governments’ fiscal responses and money printing are hitting the consumer throughout the economy. This has exploded the M2 Money Supply and will in the not too distant future speed up the velocity of money, and create inflation. I expect to hear a lot more about this in the mainstream media 12 months from now. You can watch the interview here.



The gold sector was firmly in the limelight on Wednesday, with the precious metal hitting a high of US$2031 during the session, with the rush for a safe haven propelled further by the explosion in Beirut. While the tragedy appears to have been a terrible accident, it does serve as a reminder that geo-political tensions remain ever-present.

The key drivers for gold (and precious metals generally) however remain concerns about future inflation, and this has helped gold to post another record overnight above US$2050 an ounce. The “penny is literally dropping” well and truly about the consequences of unprecedented monetary stimulus, and with the US$2000 mark having fallen, we are now hearing plenty of calls in the investment community about how ‘gold can go to US$3000 over the next 12-18 months.’

We have been gold bulls for some time, but some caution is also warranted given the recent surge, and the 40% rally in the precious metal since the pandemic lows. A correction will come at some point, and it is that event which may provide the opportunity to add exposure. For now, gold stocks should not be chased. That said, it is still important to keep an eye on the ‘bigger prize’ for gold down the track in the form of significant inflation, and I wouldn’t be selling down gold exposure at this point either and would focus on the primary bull market and let profits run.