After 8 gut-wrenching months, the HUI gold stock index has finally signaled it’s ready to move through last May’s sector highs. Here’s a snapshot of the present cycle for gold, using the HUI gold bugs index.
Each new up-leg of this cycle for gold & gold stocks has required a consolidation phase. Technical bottoms are formed via selling exhaustion. Ideally, they correspond with a positive change in underlying fundamentals and investor sentiment.
The Fed has utilized every tool in it’s bag of tricks to keep the U.S. consumer and the economy afloat. They removed M-3 from public scrutiny, they’ve manipulated PPI & CPI numbers to where official inflation numbers have become a public joke. They’ve created one asset bubble after another and have flooded the world with U.S. Dollars.
But, sooner, or later – all chickens come home to roost.
The beauty of Gold is in it’s versatility. Gold can trade as a commodity, it can trade as a currency and it always trades as the ultimate safe-haven during times of geopolitical and economic turmoil.
On the commodity side, we are only in the early stages of a generational bull market. There are three undeniable long term catalysts for this move.
1. The insatiable appetite of China, India and the emerging economies of the world.
2. A generational repudiation of paper currency for hard assets.
3. Massive global inflation and expansion of the money supply that can not and will not stop.
As a currency, Gold offers the lone refuge from the ravages of inflation. We have reached an unprecedented level of global inflation and it is not just the USA that is running the fiat printing presses on overtime. Here are the expansion rates in money supply for the major global economies over the last year.
– Russia has increased money supply by + 43%.
– India has increased money supply by + 20%.
– Brazil has increased money supply by + 17%.
– China has increased money supply by + 15%.
– Great Britain has increased money supply by + 11%.
– France has increased money supply by + 8%.
Golds biggest moves occur when it leads (not follows) the commodity sector. These initial moves often emerge with great stealth and remain under the radar of most traders. And that is exactly what happened in November. While gold was in the midst of yet another correction – here is what we saw:
Gold confirms the global helicopter drop of fiat currency and errupts against all currencies.
Gold re-establishes it’s leadership to the CRB commodity index.
Gold breaks out agains the DOW – even as it hits new highs.
In my next post I’ll talk about where I believe gold & gold stocks are going and what the catalysts of this phase of the generational gold bull will be.
Buckle up, it’s going to be one helluva ride!