A debt crisis implies there is a major shift in public confidence. So someone please explain to me how capital will continue to concentrate in U.S. government bonds while confidence is collapsing. What people must understand is that there are cascading levels of quality. Retail investors are currently flooding into bond funds thinking that this represents the highest level of quality. They are what we call sheep right before the slaughter. They fail to realize that the ultimate form of quality is gold.
We are on the brink of a major parabolic move in gold that will coincide with peak bond bullishness and deflation fear mongering. This stems from the very basic misunderstanding of what “quality” is in a debt crisis.
History is a great thing. It allows you to confirm that yes, people were just as irrational and foolish back then. I have recently been perusing first-hand accounts of the Great Depression, and let me tell you, people never change. The majority of people are clueless.
During the Great Depression, massive capital flows into bonds preceded a major concentration of capital in gold. A global debt crisis forced FDR to devalue the dollar even though he maintained that he would not devalue. The dumb money believed FDR; the smart money anticipated the inevitable devaluation and accumulated gold.
You hear the same standard government lies today about the dedication to a strong dollar and how U.S. bonds, a mere derivative of the dollar, is top-quality. To the clear-headed, this is an obscene whopper of a joke that proves people will believe anything. I don’t have the patience for ridiculous notions. I am 100% sure that the only way out of this crisis is through a devaluation, with gold playing a role as an anchor to the global currency system. I really don’t care what other people say in defiance to the facts- they are living in a dream world.
Gold: What’s Next?
The truly mind-boggling moves in gold are ahead. What you have seen up to this point is just the warm-up.
If you were smart, you were buying into weakness and are now positioned to ride this next leg up intelligently without chasing. If you catch about 60% of any swing move, you are doing pretty well. To do this, you must be able to buy weakness and sell strength.
A correction will arrive once the supply and demand dynamic gets stretched to its limit. This usually occurs when gold is trading 20-30% above its 200-day moving average. Gold is in the early stages of this intermediate term rally, and is trading only 4% above its 200-day moving average. The next leg up in gold can easily bring us between $1500 and $1600 dollars.
When we get to $1500, we can reevaluate. If gold bubble experts are still clamoring about the imminent decline in gold (after losing another 20% of their money on the short side), then you know we probably have more room to run. Remember, people who have been perpetually bearish and wrong on gold are psychologically inclined to maintain their position. It is the rare investor who can tame their human pride and admit they were wrong. So when everyone calls gold a bubble, relax. It is their emotions speaking, not their logic.