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Global Currencies Predict a Gold Rally

Global Currencies Predict a Gold Rally

Jeepers, Shae. Gold is going ballistic. You’ve been saying this is exactly how it would play out for two years now. Why aren’t you writing about it?

That was the call I got from my publisher, late Tuesday afternoon.

When he rang, I was up to the eyeballs in Aussie retail sales data.

Official Christmas retail data isn’t due to reach my inbox until later this month.

That hasn’t stopped the guesstimates from rolling in. The early consensus is that December retail data is looking pretty glum.

Unless you’re Uniqlo. Turns out Aussies can’t get enough of the Japanese clothing basics.

But I’ll save those thoughts for another time. Miserable shopping data can wait a couple of days.

Because, as I said to my publisher, ‘I’m not one for pumping up my own tyres. I’m too busy looking at what’s going to happen next.

I hung up.

Then I had a quick look at the gold price in Aussie dollars…and realised I did have something to say about gold…

The selloff to come

As I write this, the US dollar gold price is still yet to crack the $1,300 mark for 2019.

Last week, I did suggest the new year rally wouldn’t last much longer. In the short term, I wouldn’t be surprised to see gold trade all the way up to US$1,320 and then fall down to US$50-60 per ounce.

The market got a little excited in the early days of the year. So a gold price selloff should be expected over the next few weeks.

And yes, this is very much part of what I have been anticipating for some time now.

However, rather than tell you that what I predicted has happened…let’s move forward.

Let me tell you what happens next.

There’s an incredible pattern unravelling right now.

And you’re about to live through a historic moment in gold.

Market crashes reveal gold pattern

I’m not sure how old you are.

My guess is that you’ve seen a market crash or two during your adult life.

I was almost an adult when the Asian currency crisis took hold.

At the time though, I was deep into McDonald’s shifts and cramming for exams. Collapsing Asian currencies weren’t my issue. Bottom-dollar hourly wages and good grades were my only concerns.

The dotcom crash, however, is still a vivid memory.

And it was the first market crash I paid close attention to.

The unravelling of the tech bubble nearly crippled my parents’ budding tech company.

International stock markets suddenly captured my attention the way a shoe sale used to.

So, it should come as no surprise that by the time the subprime mortgage crisis rolled in, I was working in the markets.

I wasn’t a bystander anymore.

The subprime mortgage crisis took 18 months to really unravel.

The entire time, I watched global markets tumble. I took calls with customers. I tried to decipher daily movements. I analysed vast amounts of information.

What all these crashes have in common, though, isn’t the havoc they wreaked on the stock markets and major economies.

It’s that through every crash, every major index tumble, I watched the price of gold.

And these three distinct periods is how I developed my ‘gold windows’ theory.

The gold windows

My gold windows theory 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.

For example, as I tell my subscribers over at Hard Money Trader, I believe we are firmly in the investor phase of the gold windows.

This was confirmed for me when gold traded down to around US$1,180 last year.

That point was a 10% price fall from the May high. A 10% price correction in the investor phase is something gold did in both the 1970s and 2000s gold bull markets.

Basically, the price of gold trades down to a new ‘high low’ in US dollars, which later turns out to be a price that gold will never trade at again.

This happened last year. The days of buying gold under US$1,200 per ounce are gone.

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

Not exactly. However, the new ‘floor’ for the gold price does suggest the mania phase might not be as far away as I first thought.

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 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.

Just last week, the price of gold in Aussie dollars reached an all-time high of $1,888.

Meanwhile, the Canadian loonie (dollar) is only CA$100 (AU$105) 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 once-off.

This pattern revealed itself in the 2000s gold bull market. And it’s the crucial, final 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.

When you see the euro and the Japanese yen starting to hit new highs in the price of gold, that’s when we know the investor phase has closed…and the mania phase has begun.

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