When Will Gold Make Its Next Big Move?

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"USD needs to peak or pause for months before gold can make an impulsive advance to $1,500. . ."

In recent commentaries, we've focused on the macro factors that will drive acceleration in the precious metals sector. Namely, the gradual exodus from both government and corporate bonds as authorities are forced to monetize debts in an effort to avoid rising interest rates, which would hasten default and bankruptcy. This, and not bank lending or consumer demand, is the cause of severe inflation.

Predicting the timing is more difficult than the actual event. In analyzing gold, we find that intermarket analysis—analyzing a market by comparing it to other markets—is an essential tool.

For gold, the first study is a comparison with the S&P 500.

Gold compared to the S&P500

Every large or impulsive advance in gold was accompanied by a similarly large move in the Gold/S&P 500 ratio. Currently, the short-term trend for gold is higher but the trend for Gold/S&P 500 is lower. Gold can only rise so much if money is moving into stocks at the same time.

Another important and obvious example is the USD. In the following chart we show gold plotted next to the inverse of the USD.

Gold plotted next to the inverse of the USD

Gold can rise concurrently with the USD. Also, gold can perform very well even if the USD is flat. However, as long as the USD is rising, it will be difficult for gold to embark on its next impulsive advance.

Relatively speaking, gold is performing well against other markets like commodities, various currencies and treasury bonds. However, it is clear that the yellow metal will need to regain its footing against stocks and the USD will need to peak or pause for months before we can expect gold to make an impulsive advance to $1,500 and beyond.

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