Is Gold to replace fiat currency? | 23 October
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)
|Au Trend||↓ (↓)||↓ (↓)||↓ (↓)|
|Au % Risk
|80 (80)||42 (45)||61 (57)|
Total allocation 50% (50%)
Gold/USD live price
Is Gold to replace fiat currency?
23 October:: Whilst all risk weight time frames are still down, the 5 week consolidation around 1900 is building upward momentum again for a next medium term move upward. Such a move can either result in a flat correction against the all time high recorded in August 2020 or a more serious advance with a longer term channel objective above 2400. We expect the latter. 4 months price hovering around the 2011 high is a signal for further strength. No change to both a technical and fundamentally must hold of Gold and other precious metals against fiat currency depreciation.
As for the question of replacing fiat currency? This is not very likely and investors may be faced with an attempt to get them to sell directly to appointed central bank agents during a short window of opportunity sometime in the future. The fact that Central banks are holding the vast majority of above ground physical gold means it is the ONLY hard asset to compensate for the enormous debt mountain that now exists around the globe. Western and Eastern nations having more substantial gold reserves will be the voices to determine the policy and nature for a monetary realignment.
16 October:: On October 15, 2020 the IMF posted the Plenary Speech of its MD Kristalina Georgieva signalling a potential realignment of the Bretton Woods agreement. That speech can be seen following this link
How significant is this? And does it relate to our views expressed in this April 17, 2020 update discussing the need for a hard asset realignment in order to revalue global debt to an acceptable ratio to GDP?
Mrs Georgieva says that the Sars-Cov2 Black Swan event alone has accellerated central bank footing by 7,5 Trillion dollars and the IMF appears extremely concerned that this creation of more debt, reaching 125% of GDP in advanced economies in 2021, drives potential turmoil in financial markets unless unsustainable debt is restructured without delay. There is zero price discovery. The price of all asset classes are now 100% controlled by financial authorities around the globe. The proposal for monetary restructuring is still unknown of course but will likely include a strong technical element whereby retail banks in their traditional form will no longer be necessary. As a result, precious metals should be held even without looking at charts, albeit difficult, as we are now given a signal to prepare for something big. And that is the significance.
Chartwise, gold is now downtrending in all timeframes, whilst the near 100% expectation of bearish divergence in the Medium and Long term timeframes hasn’t yet materialized. We will await such event with patience even if a possible stockmarket crash temporarily drives down prices in profitable asset classes like Gold and Silver in order to cover losses and margin calls. No Change.
Gold/Euro live price
23 October:: As for Gold against Euro a very similar bullish technical picture develops. Short term price fluctuations are mainly currency exchange rate driven. No Change to hold gold against any fiat currency.
16 October:: The story on Gold/USD can be replicated for Gold/EUR although we have seen a mild bearish divergence indication in Weekly and Monthly timeframes. Maybe the dollar will be managed higher again and support the virtual equity market, at least until after the US elections. Gold has held above the 1386 handle 2012 high for 10 months which is a very positive sign for price strength in the long term.
Gold/British Pound live price
23 October:: Short and medium term risk weight is indicating a relatively weaker pound. Given the UK’s like poorer average economic performance in years to come, a larger debt burden without much of a gold reserve to balance, the gold price against sterling could begin to show a virtual return to the string of GBP devaluations seen between 1970 and 1990. Sterling based investors simply must hold and protect at least 10% of their free assets in physical Gold and for larger investors and tax purpose this may need to be in Royal mint coins and sovereigns which are legal tender in Britain and therefore fully exempt from capital gains tax.
16 October:: The story on Gold/EUR can also be replicated for Gold/GBP. Different conditions apply due to more limited gold reserves by the Bank of England and a possible no deal Brexit risk. Gold is at least a Medium term hold expecting a fiat currency realignment.