Can Gold Break the Glass Ceiling of Debt Resolution

Hawkish comments from Fed officials will always cause pause for thought in the Gold fraternity.

We should certainly be expecting further rate hikes from the Federal Reserve. Given the stubbornly high still extreme levels of inflation being seen. The coming month’s US inflation data in particular, has the potential to send alarm bells ringing at the Fed.

Nevertheless, there is a lot more going on in the Gold market than these shifting market sentiment rate hike expectations.

There has clearly been on-going strong demand for Gold in recent months.

The big picture backdrop remains war on the EU’s doorstep, hat has not gone away, and of course a slowing US and global economy which threaten the very fabric of the US dollar as the primary reserve currency in the world. Where to run to in the next crisis, which could be just around the corner? If the Euro appears problematic, and the historic precedent for the US dollar continues to evaporate, Gold remains the ‘go to’ safe place of haven.

The ultimate real and solid store of wealth which has proven itself again and again throughout history, remains Gold.

We also know that several nations have been focussed on re-establishing their own independent level of Gold reserves for the long term. This is Gold being taken out of the market which will not return any time soon.

While the global economy is slowing, it is true that the wealthy have been doing very well regardless. Industrial and jewellery demand for Gold may actually continue to rise, even during a prolonged global economic slowing.

This creates a situation of as uncertainty rises, demand goes up. And as a crisis store of value, there is no real challenger. Gold wins out every which way you turn. Everyone should be getting some.

A resolution of the debt crisis in the coming week should be forthcoming. This will momentarily see some selling of Gold, but only as a knee-jerk response to that hopeful development. Should a default occur, there is no telling how high Gold will scream.

The weakness of the past couple of days is largely technically driven. A lot of stop loss sell orders had built up under the $2,000 level. With that process already nearing completion, the market should begin to strengthen again soon. First that debt resolution hiccup, or acceleration, but in any case this is a commodity in short supply that investors should remain long of.

My targets for this year are unchanged. First stop $2,300, then $2,500. A 20% rally from here is plenty to celebrate with a showering of gold confetti.

I do not think we will see $3,000 this year. Only a US debt default would get us there?

Clifford BennettACY Securities Chief Economist

The view expressed within this document are solely that of Clifford Bennett’s and do not represent the views of ACY Securities.

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