All I Want for Christmas Is a Rising Gold Price

All I Want for Christmas Is a Rising Gold Price

That’s the bounce, I thought to myself this morning not long after my alarm went off.

Yep. That’s the first thing I do in the morning.

Before I feed the kids and give the dog breakfast…

Before I return any messages…

Before I even turn a light on…

I’m checking to see what happened with the fear metal overnight.

And this morning, I got what I’ve been looking for.

After eight weeks of heading south and small rallies being snuffed out, the move was made.

It looks like there might be a Santa rally after all…

Everyone, get set for the next leg up in the gold market.

Santa rally for gold?

The US dollar gold price jumped 1% overnight.

And now the technical set up for gold suggests that there’s a move up coming.

I know, I know. A 1% jump doesn’t sound like much.

So let me put it this way.

That 1% jump meant that gold moved US$16 (AU$23) per ounce higher overnight.

Now, that’s not a massive jump.

Yet, it’s what this price suggests that really matters.

Overnight the yellow metal moved above US$1,470 (AU$2,148).

Essentially putting the price above previous points of short-term resistance.

In other words, for the past four weeks, the US dollar price of gold has struggled to stay above US$1,470.

Moving beyond that is a good sign.

US dollar gold price — next leg of the rally?

Source: Goldprice.org

Does that mean the Santa rally is about to find its way to gold?

Possibly.

Driving the move last night was the suggestion that President Trump could delay any sort of US–China trade deal until 2020.

That thought rattled markets.

That’s all the more important as without some sort of inked agreement, US tariffs on Chinese goods apply as of 15 December.

Roughly 10 days from now.

This sort of geopolitical instability could give the gold price rally legs to move back up above US$1,500 before the end of the year.

Which really, is all I want for Christmas…

The gold windows

Nonetheless, what the gold price does in the next three weeks doesn’t really matter.

While a short rally is good news, there’s much bigger things at work for gold…

It’ll only be a matter of months before we start to see some serious moves in the price of gold.

How do I know?

Simple. It’s about looking at the past two gold bull markets to know which way things are going.

Rather, I like to call it my gold windows theory.

It isn’t some complex mathematical idea.

Nope. It’s incredibly simple.

The idea is that a gold bull market moves in three distinct stages: Currency devaluation, investor phase, and then, mania.

However, in each of these phases, there are smaller steps along the way.

And these smaller steps help you identify where the gold price is in each phase.

I believe we are firmly in the investor phase of the gold windows.

We can tell this by the type of money flowing into gold.

In the past two gold windows, the investor phase has been identified by the creation of gold futures and then exchange traded funds based on the gold price.

This time around, the investor phase has been created by central banks and institutional money buying gold.

Does that mean the gold mania phase is next? Is the price of gold about to go parabolic?

Not exactly.

The investor phase can take a couple of years to play out.

However, at this point, gold will still rally. But it’s likely it will make stealthy year-on-year gains. You know, climb up 15–25% each year for a couple more years.

But, before we get to the final phase of the gold windows…one more pattern needs to reveal itself.

And that showed up in the final days of 2018…

Currencies predict a gold rally

Believe it or not, the next clue to what’s happening for gold comes not from the gold market…but from currencies.

Not gold in terms of US dollars…

…but the value of gold in Turkish lira, Russian ruble, Indian rupiah, South African rand, Brazilian real, and the Mexican peso.

All of these emerging market currencies have all-time highs when compared to gold.

Sure, neither Russia nor Turkey is known for currency or political stability.

Yet both of those currencies reflect a change in perception. Investors aren’t fleeing into more stable currencies like the euro or US dollar. Rather, they are moving into hard money such as gold.

It’s a similar story for Brazil and South Africa.

Remember, these are gold-producing countries.

But those are just emerging markets, right?

Emerging markets traditionally have weak currencies, so all-time highs in their gold price shouldn’t be a surprise.

Well…what about Australia or Canada?

Both are major, developed gold-mining economies.

At least, that’s where the all-time highs in local currencies started.

Gold in Aussie dollars is around $2,158. And the more the Aussie dollar falls, the higher the Aussie dollar gold price will rise.

Meanwhile, the Canadian loonie (dollar) is only CA$75 (AU$82) from its all-time high as well.

It’s no longer just emerging market currencies wreaking havoc against gold. Major developed economies are falling in value too.

This isn’t a one-off.

This pattern revealed itself in the 2000s gold bull market. And it’s the crucial stage in the ‘investor phase’ of the gold window.

Remember, this currency weakness happened before we knew a financial crisis was going to land at our feet.

Gold is doing exactly what it should be.

Alerting us to stress in the financial system.

For now, it’s showing up in emerging markets and commodity-producing nations.

Now it’s starting to hit major global currencies.

Gold reached an all-time high in the Japanese yen in September this year. As did the euro.

The only currencies yet to hit new highs in the gold price?

The Swiss Franc and the US dollar.

The gold price rally is just beginning.

And it’s giving you clues as to what’s about to happen next.

Until next time,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia