Massive Inflationary Pressures Will Lead to Uptrend in Gold

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"When gold is mired in one of its corrective periods it's easy to lose sight of the underlying story that will drive gold for years to come."

The U.S. is already saddled with a ridiculous amount of debt, and on top of that the Fed, Congress and the Treasury have just banded together to generate "massive fiscal stimulus," which will create "massive inflationary pressures." And this will lead to a massive up trend in gold.

Financial markets are non-linear systems, so even though we'd like to see a nice and tidy linear relationship between high inflation and gold, it never ends up being that simple. But we do have the necessary investment theme in place to drive gold well into the $1,000s, and perhaps even to $2,000. It's just going to take some time for this theme to gain some traction.

As soon as gold breaks above the high of the initial surge higher—at $890—then we'll know that the next big up trend is off and running. In the short-term, gold is not looking so good due to a bearish short-term consolidation pattern.

Generally, when a market goes sideways right at the lows then it's setting up the next drop. The last drop carried gold down about $50. If gold were to have a similar drop of around $50, then it would take prices right down to the target for this correction at $772.

Unless gold makes a strong move back over $840—which looks unlikely at this point—we should continue to anticipate a drop down to $772, where we'll look to get back into long positions.

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