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Status of Gold (March 2020)

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Excerpt from: “Crystal Ball for Investing and Trading” Book.

Status of Gold

Gold and silver are two commodities that have long been used as money throughout the history. The history of gold is explained in detail in Chapter 9. Here, we would like to check the chart of gold, called XGLD in TC2000.

Figure 13.21 shows a monthly chart of gold from 1993 to March 20, 2020. In the early phases of chart, gold was in a bear market and developed a double bottom W-type trend reversal with a bottom price of 251.70 on August 25, 1999, and then with 252.60, on February 20, 2001. After the second bottom, it rallied until September 6, 2011, to reach an all-time high price of 1,920.80.

Figure 13.21 – Charts courtesy of TC2000.com

In sympathy with markets plunge, gold has started to go down after February 12, 2020.

Gold should then find support in the area of crash of 2008 in the range of $650 to $975, or even lower. Once it bottoms, gold is predicted to start a historical rally toward a price of $10,400 an ounce, while Dow Jones should continue its plunge until November 9, 2022 (or October 21, 2021).

The author believes that among others, one purpose of the corrective subwave E (or Grand Super Cycle degree wave 4) is to force the central banks and politicians to back their fiat currencies by gold again. This should happen because of the on-going currency war and due to loss of citizens’ trust in the governments and in the fiat currencies.

Consequently, the develop countries may sit down again, like in Breton Woods in July 1944, to agree on backing their currencies by gold again and fix an exchange rate for their currencies. Obviously, this would force gold to skyrocket during the months prior to such decision.

From monetary policy viewpoint, governments need high inflation to contain the burden of their debt over time. However, the numerous world Quantitative Easing programs since 2009 have so far failed to achieve the central bankers even mild target of 2% inflation. And the currency war is still in progress in March 2020. 

Currently, one way the governments can import a massive amount of inflation would consist of resetting the world monetary system through a worldwide agreement like in 1944.

The IMF and richest central bankers could decide to back their currencies by gold and fix its price to some $10,400 per ounce over a week end. Central bankers would then be buyers of gold at $10,350 and seller, at $10,450. This would then result in an immediate creation of some 770% inflation by assuming a gold price of approximately $1,300.

The price of gold at $10,400 is not an empiric assumption. Currently the amount of world currency notes in circulation is around $26 trillion and the volume of gold, approximately one billion ounces. By assuming a 40 percent backing by gold, the price of an ounce of gold would become ([26,000 billion x 40%] / 1 billion ounces of gold) = 10,400 (raw figures are approximations).

This decision would result in transferring the buying power of currency notes to central banks and would then make the central bankers with highest amount of gold in their reserves as the richest in the world.

Practically speaking, this measure would devalue the buying power of the dollar by some 770%.

From chapter 9 of the book, we know that in January 1934, the Federal Reserve decided to increase the price of gold from some $20.68 to $35 overnight, hence creating an inflation of over 60% immediately.

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