The Daily Market Report: Gold Setup Feels Similar to Pre-Crisis Days

USAGOLD/Peter Grant/07-26-17

Gold dipped to a new low for the week in overseas trading, but has since rebounded into positive territory as markets await today’s Fed decision. The yellow metal has been consolidating the last two-weeks of gains so far this week.

The Fed is widely expected to hold steady on rates when they announce policy at 2:00ET today. There is some degree of hope that the Fed will take this opportunity to clarify its policy intentions for the remainder of the year, or at least provide some additional information on balance sheet normalization.

However, in light of the weak inflation and growth data, I suspect the Fed will play this one pretty close to the vest. In other words, the statement will look much like — if not exactly like — the June statement.

Meanwhile, Treasury Secretary Mnuchin is urging Congress to raise the debt ceiling before they all depart for the August recess. “As I’ve suggested in the past, based upon our best estimate at the time, we do have funding through September, but I have urged Congress to take this up before they leave for the recess,” Mnuchin said.

Oh, but that’s not the way Congress operates these days. They’ll take their recess, go do their fundraising and take up the debt ceiling when a crisis is imminent. Make no mistake though, the debt ceiling will be raised or suspended. It always is . . .

Frank Holmes of U.S. Global Investors makes the case that global debt is the “mother of all bubbles.” In the past decade since the financial crisis, global debt as risen by an astonishing $120 trillion to $217 trillion! That’s 327% of global GDP!

“Savvy investors and savers might very well see this as a sign to allocate a part of their portfolios in “safe haven” assets that have historically held their value in times of economic contraction.

Gold is one such asset that’s been a good store of value in such times…” — Frank Holmes

Despite the obvious risks, market volatility continues to plumb historic lows:

And that in and of itself is somewhat ominous. When volatility returns — and you can be sure that is will — it may return with a vengeance.

According to a Bloomberg article today, gold’s 120-day volatility is at levels not seen since 2005. Gold spent much of that year narrowly confined within the $410-$450 range. When it broke out of that range in July of 2005, gold was off to the races, trading as high as $730 in March of 2006. By the fall of 2007 the yellow metal had set new all-time highs above $850 and was on its way to its first foray above $1,000 as the financial crisis truly got underway.

The setup we’re seeing today feels awfully familiar. The calm before the storm is the ideal time to be buying gold, because when the storm is raging, prices and premiums will be a lot higher.

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