Is the Corona virus a driver for a Gold Standard? 24 April, 2020

Prediction for Gold at close 24 April


Gold Price Forecast relative to
Long Term Monthly
(LT-M) – Medium Term Weekly (MT-W) – Short Term Daily (ST-D) – and Hourly (not shown) data

(Previous week in brackets)


Gold/USD LT-M MT-W ST-D
1727 (1678)
Trend ↓ (↓) ↑ (↑) ↓ (↓)
% Risk
Weight
80 (80) 82 (72) 80 (80)
Allocation 100% (100%)

Gold/USD live price


Is the Corona virus a driver for a new Gold Standard?/h2>

Last week we started the discussion of a return to a possible Gold standard for all major fiat currencies. We did not mention a Gold standard as such but there is simply no alternative anymore due to the expected massive increase in public debt everywhere in the world. Teams within Worldbank, IMF, ECB, BIS and central banks around the globe must be sweating at alternative options to repair the unprecedented damage being done.
Unfortunately there are no other options that can gain trust like precious metals. Central banks around the globe have been accumulating gold again or least have maintained their gold reserves at stable levels since 2014 and there is a reason for that. Yet they don’t like oridnary investors hoarding gold, but they do.
Canada and the UK as majors and some other are a few of the exceptions, so they will need to pay a price. If we look at the major currency blocks in the world, Eurozone as a whole looks to be in a stronger position with post Corona public debt still below 100% of Eurozone GDP. But that still needs to come down substantially too as the post Corona debt levels are not sustainable in Europe because the most hurt countries like Spain, Italy and France will never be able to turn the corner with expected budget restraints. And the same proably applies to Germany and The Netherlands. With Southern Europe Debt to GDP well above 100% this simply must be reversed and the only possible way to avoid social and political unrest is a devaluation of the EURO against Gold and Silver by a factor of 7 to 8. This is a simple and workable solution that can subsequently be managed by regulation. We predict that any other solution will drive Europe into a black hole. The same applies to all other major nations around the globe and it also depends on solidarity from the strongest economies whether the only proper debt solution via hard assets has any chance of success.
It requires a very smart market play that may even involve a partial confiscation order if certain conditions cannot be met. All set against solidarity, brotherhood, and common interest.
Europe as a whole has GDP of about €16T and public debt, post Corona, of somewhere between €11.5 and €13T. This average will have to come closer to 50% in order to create a widely trusted base footing and leave room for badly needed government financing of major infrastructure projects in all European countries. European countries have 11 tonnes of Gold reserves. A €5T desired drop in Public Debt, post Corona, values gold at €15,000 or at least well above €10,000 depending on the actual gross numbers to be agreed. This is higher than the initial analysis value done for Italy last week.

A study initiated by the World Gold Council in 2014 and undertaken by Boston firm New Frontier Advisory concluded that a diversified portfolio with between 4 and 10% Gold, depending on base currency, between 1971 and 2014 would have performed better than a similar asset
diversifcation without Gold.
In light of this, pension funds should always carriy a minimum insurance exposure of 2 to 3% in precious metals which most haven’t.
The pension fund supervisor in the Netherlands, the Dutch Central Bank, ordered the sale of a strategic 13% of total assets gold position taken in 2009 by the Glass workers pension fund. In 2014 a court in Rotterdam decided that the Central Bank could not sufficiently substantiate the reasons and risk for that instruction and was ordered to compensate about €5 million.
Now that Gold has closed at an all time high against the Swiss France last week, Gold/USD is the only pair yet to score an all time high. Even though the Long term and medium risk weight is moving into overbought territory, the trend development is not showing any clear sign of getting tired and experience learns that the present persistent rally is typical for a further massive price extension to develop before any bearish divergence signals surface.

For both technical reasons and very fundamental reasons due to these unusual circumstances, we will stay fully allocated to Gold.

17 April: Daily Trend turned down after peaking on Tuesday at 1747. Yet gold finished just 3 dollars below the previous weeks close. The chart pattern suggests a corrective move from an uncompleted advance that started on March 16. A drop can always be deep especially since the Weekly shows a potential bearish divergence if it turns down. Strong markets always show bearish divergence on several occasions and especially on the shorter term tools. As we haven’t seen a confirmed bearish divergence on any of the time frames we put 100% trust into the experience of expecting this correction to end soon. This market remains in an uptrend as long as the price holds above 1450. No change!

Note: Gold and Silver are the ONLY non-fabricated alternatives to maintain trust in a fiat currency society. For the latter to survive the only solution is a devaluation against Gold and Silver based on smartly controlled conversion conditions. That can (only) be achieved if Countries are prepared to hold a bid for Gold in the market that lowers their average debt to GDP to a more realistic level of well below 80 after the closure of the monetary floodgates. For Italy of France as an example as they hold a large amount of gold in reserves, the gold price should reflect a level that brings their public debt to under 100% of GDP with a European average of well below 80%. For Italy who’s debt to GDP is likely to rise to at least 150%, the Gold reserves must then represent about 800 billion Euro more than today. 800 billion divided by 2,452 tonnes of gold = €10,150 + €1,500 = Goldprice €11,650. Simple as that. Similarly for the USA this means say achieving a drop of public debt by some 4 Trillion or so. That would represent a gold price of around $17,000. An additional 30% devaluation of the US Dollar would be necessary to come in line with Europe. Numbers will come out different of course but this would be the general sense for justifying a trusted reset.


SILVER FORECAST

(Previous week in brackets)

Silver/USD LT-M MT-W ST-D
15.16 (15.13)
Trend ↓ (↓) ↑ (↑) ↑ (↓)
% Risk
Weight
43 (43) 45 (40) 53 (80)
Allocation 100% (100%)

Silver/USD live price


Silver will follow in Gold’s footsteps which hopefully weigh heavy. The weekly timeframe bullish divergence was confirmed last week and continues even though silver remains relatively weak. The same fundamental approach applies as well. It is tempting to switch more gold to silver even, but that would be opportunistic greed and should be avoided under these bizarre circumstances. No Change.

17 April: Silver this week has shown the exact same wave pattern as gold which puts support at around 14.00 without violating the advance that started on March 18 from that low volume surprise low of 11.63. We are still 30% above that recent low.
Silver looks a lot stronger technically than gold as it has a confirmed bullish divergence upon turning up after the collapse during the 2nd week of March. No Change


GOLD/SILVER Ratio Price Risk Analysis

(Previous week in brackets)

GOLD/SILVER Ratio LT-M MT-W ST-D
112.85 (110.00)
Trend ↑ (↑) ↓ (↓) ↑ (↓)
% Risk
Weight
75 (73) 58 (60) 75 (37)
Allocation 50/50 AU/AG (50/50 AU/AG)

Gold/Silver Ratio live price


The ratio is not out of the woods yet. The bearish divergence in the Monthly timeframe will hard to not materialize. Silver has behaved like a suffering commodity whilst it can be stored relatively cheaply at large quantities and serve as a store of wealth. Someday in the near future this will be better understood. The ratio will return to equilibrium as it always has. No Change.

17 April: The biggest reason to be short the ratio now is the massive bearish divergence on the monthly risk weight. The price high of June 2019 at 93.00 was showing an overbought risk weight level of 92. With a price high of 128.00 and a brisk weight level of 73 the divergence itself is unprecedented. We wait for equilibrium at 50-60 level. This means a doubling of the silver price relative to gold from current levels


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