With MMT and debt deflation, what’s next for Gold?

Prediction for Gold and Silver at close 15 May, 2020

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)

1740 (1700)
Trend ↑ (↑) ↑ (↑) ↑ (↑)
% Risk
82 (81) 86 (86) 74 (50)
Allocation 100% (100%)

Gold/USD live price

At this week’s close the last but one standing currency gave up on Gold. The Swiss Franc weekly closed at a new all time high, since 2012, for the second time in one month. That leaves the dollar which only has a mere 10% to beat the September 2011 closing high.

If a larger number of influencer economists start to embrace the untested Modern Monetary Theory one needs to become highly alert. The exact same thing happened in 1985 as the US dollar rose against all odds and doubling its value from the 1978 low against the Deutsche Mark. That experience helps to drive risk awareness or even become a contrarian.
Theorising Debt Deflation where excessive debt leads to deflation first as the debt is so huge it cannot be repaid leading to bankruptcies and so forth. The big difference between today and previous major depressions, on which the theory was developed, is that back then, there was a gold standard, public debt was much much lower as a percentage of GDP and interest rates weren’t sub zero. So, this MMT is just old theory with hindsight, whilst the economic variables are hugely different. Dangerous indeed.

To keep it simple we stick to the single available solution of a fiat reset against hard assets like gold and silver or a mix with other essential commodities.

Looking at the charts the risk weight in all time frames is indeed high, but the evidence of major top, from experience, will lie in the appearance of bearish divergence in the Long term time frames. We should expect to see moves north that require logarithmic charts to be introduced again and if that happens it means inflation is present big time. Of course, it is already in the equity and real estate bubble markets.
Stay fully invested in physical Gold only, and always enough to not lose entire savings if denominated in speculative assets, like cash in the bank, equities or any other paper iou’s for that matter and that also applies to Gold ETF’s. The GLD custodian HSBC 200M loss for not meeting physical ~Gold backing ‘on paper’ is a big warning signal that something is seriously wrong in the physical gold market. No Change.

8 May: Let’s hope many people have listened to Jim Rogers and buy below 1,000. That leaves something to be desired. Gold ETF interest in the meantime remained very strong according to the latest World Gold Council update but means little as it is speculative investment and we just don’t know what the net effect is in the physical gold space. Small hoarding of physical gold by private investors still seems to be evident across intermediaries worldwide but central banks have largely halted gold purchases whilst Russia was a small net seller. Central bank activity is the key market for size and one to watch in coming months.
Daily risk weight has turned up in neutral ground whilst the gold price remained stable around 1700. The Weekly is getting into overbought territory butg lookin g make a new risk weight high and so is monthly, but our experience tells us we need to see bearish divergence in long term time frames first for a strong market like gold to develop chances of a more serious primary trend correction or reversal. That’s the deal and until this becomes evident anything can happen on the upside including a reset. That evidence if it comes will be at least 6 weeks out at the earliest and Gold/USD therefor is a strong hold. Gold is a safehaven in times of uncertainty whilst this is the understatement of the year under present market and economic conditions. The technical picture fortunately confirms this. No Change.


(Previous week in brackets)

16.60 (15.40)
Trend ↑ (↓) ↑ (↑) ↑ (↑)
% Risk
44 (40) 50 (48) 90 (55)
Allocation 100% (100%)

Silver/USD live price

Silver, for the first time in many months, has shown some real price strenght and confirmed by an intra-month long term change of trend upward ina very bullish divergence position.The March low now looks like a controlled move and far from free market price discovery. We already noticed this just after that March low as the Weekly turned up from a very low risk bullish divergence picture. Silver has a long way to go and we just need patience. It will be a very bumpy road for some. No Change.

8 May: Silver appears to want to recover from the dead rather slowly and after a two week consolidation has managed to show some fresh strength at the end of the week. If Monthly risk weight turns up this month on a bit more price strength then silver generally starts to look stronger again too. As this is clearly a highly manipulated market one wonders exactly for what purpose. Clearly certain interest is being protected. How long for this can hold is the big ?. We need patience. No Change

GOLD/SILVER Ratio Price Risk Analysis

(Previous week in brackets)

104.20 (109.50)
Trend ↓ (↓) ↓ (↑) ↓ (↓)
% Risk
67 (70) 55 (60) 9 (43)
Allocation 50/50 AU/AG (50/50 AU/AG)

Gold/Silver Ratio live price

Silver weakness in recent months has been a major disturbance in our portfolio but it hasn’t changed the technical outlook. This wasn’t defying gravity. The Gold/Silver ratio has now recovered 20% from the panic high in March and is setting up for a long recovery to equilibrium. Surely more government debt will be used as a phony war chest against an undesired attack on the US Dollar. The ratio will need to break 80 first which now looks like strong support. If and when a world monetary reset becomes mainstreet going scenario, Silver will move a lot closer to Gold with asking and dealing prices at 20% above paper spot. No Change in keeping an evenly spread investment portfolio in Gold and Silver with maybe more bias on Silver still. A precious metals portfolio should be at least 25-30% of total free assets. Just as an insurance to keep the entire portfolio above water. Anyone, even with a very small savings account, should not hesitate to pay a larger premium for acquiring a few coins of gold and silver. No Change.

8 May: Same picture as last week with a narrowing weekly risk weight at the same net level.
Technically therefor the ratio looks weak but we need to wait for the monthly to confirm the downtrend at the May close. The present 110 level is still bizar from a historic perspective, but in these unprecedented times nothing surprises anymore. Most analysts are at odds with all asset classes behavior and looking for others to confirm or conflict with their opinion. We are likely to stay with the Gold/Silver spread until it finds that more longer term equilibrium around or sub 50.

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Posted in A - All Financial Blogs | 2021 Forecast, GOLD / US DOLLAR FORECAST & PREDICTIONS.

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