Investors are obsessing over the Fed’s slight shift in messaging and whether inflationary pressures will actually be “transitory.”

While these concerns raise doubts about gold’s rebound, they are also obscuring the remarkably bullish long-term view.

June 28, 2021

Dear Fellow Investor,

A week ago, I featured a post-pandemic chart of the gold price in this letter…and it really depressed me.

It showed the rocket-shot in gold after the pandemic set in…the long correction from August through the double bottom in March…and then the seemingly failed rally from that point.

In short, the big sell-off after the Fed started talking about thinking about thinking about raising rates had sent the gold price plummeting through both the 50-day and 200-day moving averages.

Importantly, the pending “golden cross” of those two averages had obviously been postponed, if not prevented entirely.

And while the March lows had not been approached during the drop and the nose-dive had abruptly halted around $1,770, a sustained recovery seemed doubtful given the Fed’s new messaging.

All in all, a pretty depressing picture for a long-term gold bull like me.

Hah! That very thought reminded me to take another look at that long-term view on gold, and I did just that in a dispatch delivered to my Gold Newsletter Alert subscribers on Friday.

Perspective Matters

First, I featured that same chart of gold’s price action since the pandemic first took hold. Here it is again:

As you can see, gold’s big decline was solidly halted, but the recovery since then seems tepid at best. And as noted, the eagerly anticipated golden cross of the moving averages doesn’t seem quite as imminent, and could be considered in doubt.

But then, I took a look at the bigger picture…

The 15-year chart above reveals the insignificance of gold’s recent trading pattern when measured against some of the larger and more compelling technical arguments for higher prices.

For example, gold is continuing to trace out a very powerful cup-and-handle pattern, one that (as I’ve mentioned before) projects to prices in the $2,500 area. If that happens, we’ll be hard pressed to remember what happened to gold in recent days.

Further, I’ve marked some important previous instances of a golden cross over that time period, and you can see that they have preceded some very profitable and long-standing moves in gold.

Sharp-eyed observers will be able to pick out a couple of instances where the golden cross was deceiving, including after the 2011 peak. In fact, the similarity between today’s situation and that of 2012-2013, when the Fed was also trying to shift to a more-hawkish stance, is something to consider.

The question that every investor will have to answer for themselves is whether they actually expect the Fed to shut off the flow of monetary adrenaline upon which the financial markets have come to depend…or whether the Biden administration and Democratic-controlled Congress will suddenly discover fiscal prudence.

My vote is no for the above…and yes for a continued gold bull market.

So again, while the near-term is uncertain, the likelihood of much higher prices for gold and silver over the months and years ahead is very high indeed.

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A Note On Basel III…

Much has been written in recent months about the potential impact of the new Basel III regulations finally going into effect today.

As I noted in a MarketWatch article posted late last week, opinions on the impact are as varied as one could imagine, ranging from one end of the spectrum to the other.

I actually worked closely with MarketWatch reporter Myra Saefong on that story, steering her to sources ranging from bullion-market insiders to some of the most ardent and eloquent critics of the bullion-banking system. It’s a complicated subject, and I’d direct you to that story for one of the best summations of the situation that I’ve seen.

As I believe the article conveys, my opinion is that no one really knows what the effect will be, and that in any event the regulations won’t take effect in the UK — the epicenter of global gold trading — until January 1 of next year.

So at the very least, that delay will put off any real impact, and also serve to give the paper gold traders time to stop the changes altogether.

Time will tell, of course, and we’ll be watching closely — as will the entire gold bug community.

In the meantime, we should also maintain a focus on the bigger picture.

Because with all concern for fiscal prudence having been thrown out the windows in Washington…and with any meaningful hike in interest rates now impossible given the size of the federal debt…a long-term bet on higher gold and silver prices should be very profitable. And necessary.

All the best,

Brien Lundin
Editor, Gold Newsletter
CEO, the New Orleans Investment Conference