Gold rose over $50 an ounce last Friday and the rally extended this week with the yellow metal rising above $1,700 an ounce. In his podcast, Peter Schiff explained why he thinks gold has bottomed out and this is a significant reversal.
Commodity prices in general have rallied over the past few days. News that China may be on the verge of ending its zero COVID policy sparked the rally. Industrial metals and oil both posted big gains.
This is bad news for the Federal Reserve.
Inflation will be pushed higher even as the economy continues to ease. »
Rising Chinese demand as the country’s economy reopens could also be a problem for the Fed. The central bank focuses on fighting inflation by lowering demand. But as Peter pointed out, the demand is global, not just national.
I always talk about how we can have higher inflation during a recession because I realize that prices are not just determined by Americans’ ability to pay, but it’s everyone’s ability everywhere in the world to pay. Americans compete with foreigners for the same products. And, it’s not just a function of demand, but it’s a function of supply. Even if demand in America drops, supply in America could drop even further because demand outside of America increases and supply is diverted from the United States overseas. So even though US consumers are buying less, there are still fewer goods available to them. And so, what ends up happening is that fewer goods are being bought, but those that are being bought are at ever higher prices.
The weakness of the dollar could make the situation even worse. Despite Jerome Powell’s hawkish comments after the Fed’s November meeting, the dollar failed to make a new high.
I think as it becomes more evident that the dollar has hit its highs and is heading lower, I think you will be rushing to liquidate long positions in the dollar. So many people have crammed into the dollar as the only safe haven, like the least dirty shirt in the basket, the dollar milkshake theory – anyway, a lot of people have been buying dollars, and these are long dollars. The assumption was that the dollar would continue to rise. But the minute that momentum is lost, there’s a huge downside as everyone looks to unwind those positions.
Peter said another signal that the dollar has hit its high is that gold has hit its low.
Of all the big moves in the market over the week, I think the biggest move was in gold.
Gold hit a fresh 52-week interday low last Thursday (November 3). But on Friday, gold rallied with the price up $52.
If you look at the gold trading pattern, it was an outside reversal week, where during the week gold exited the previous week’s low, it exited the previous week’s high, then it closed above the previous week. high.”
Peter called it “a very significant reversal”.
And it continued this week with gold rallying above $1,700 an ounce on Tuesday (November 8).
Silver charted a similar rally. The difference was that silver did not hit a new 52-week low last week.
When you see gold hit a new low, but that new low is not confirmed by silver, it is an indication of a low because silver is normally lower than gold until until you get to the end of the bear market, then silver starts to have some relative strength against gold.
Peter said gold mining stocks also confirmed the bottom. As a group, the miners also failed to hit a 52-week low, even though gold did.
What makes me more confident about this call is the fact that while gold itself hit a new 52-week low on Thursday, gold stocks did not. And then we had the explosive move on Friday where both GDX and GDXJ rose over 10% in the day. It is very rare to see gold stocks rise 10% in a single day. »
While $50 rises in the price of gold and 10% rises in mining stocks are rare, Peter said he believes it will become less in the coming months.
I think before too long we will finally see the price of gold jump $100 in one day.
Peter also pointed out that we have already seen healthy demand for physical gold.
You can already see the demand for physical gold and silver, where demand is skyrocketing. Demand from central banks is skyrocketing.
In fact, central bank demand set a record in the third quarter with a huge increase in unreported purchases. Many believe the mystery shopper was China.
It makes a lot of sense to me. I think China is really trying to hoard their gold, especially if China is planning to do something, maybe make a move against Taiwan. They won’t until they really consolidate their gold holdings. They want to divest themselves of US dollars and US Treasuries and get stuffed with gold before they do anything that might invoke sanctions.
Peter said it’s only a matter of time before investors realize that the price of gold will not only rise in proportion to the cost of producing it, but will rise more.
Because investors are losing confidence in the ability of the Fed and other central banks to control inflation, they are now more motivated to hedge against inflation because they can no longer rely on central banks to protect them. They must seek their own protection, and they can find it in gold.
In this podcast, Peter also talks about the continued decline in tech stocks and the declining rate of activity.
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