Great gold rally

Great gold rally

The great gold rally is underway, the Fed’s 25bps “hawkish rate cut” in July means that the opportunity cost of holding gold could soon be zero. So the hedge funds have gone all-in on gold.

I believe that we are in the preliminary stage of the Fed’s rate-cutting cycle, which will be the shortest cycle ever bearing in mind that with the Fed fund rates at 2.25% it won’t take long to get to zero.

Back in January, I wrote “the ultimate haven asset, gold could take a moon shot,” in a piece entitled, Fed Impotence.

The shiny metal is up 18.7% year to date, easily surpassing the treetops and well above all the indices. 

The Fed is like a weary Emperor who sees the barbarians from a distance making headway.

To the east, the gold bugs have regrouped, trying to take upper-ground and gearing up for a great gold rally. To the west, is another emerging rebel, the crypto tribe regaining strength and advancing on the Fed’s debt-fuelled money system. Directly behind the Fed is that ever-pressing fear of stagflation, where the currency has been debased due to monetary policy lunacy.

But the great gold rally, like the crypto rally, is a threat to the Fed’s system of rule by debt

So like every Emperor under threat the cavalry will be given the orders to charge on the barbarians. With infinite paper money, the Fed’s henchman will enter the derivatives market and flood the gold, crypto market with sell derivative contracts.

The great gold rally, along with the crypto rally could also become another blood bath as the Fed attempts to send prices tumbling.

Some will see this move as an opportunity to buy more for less.

Great gold rally is now even being endorsed by Goldman Sachs and Citigroup Inc. They are predicting that bullion could climb about 6% to $1,600 an ounce in as little as six months.

But Goldman Sachs gold forecast has an uncanny habit of getting it wrong.

Back in August 2008, Goldman Sachs slashed its forecast on gold prices, citing overvalued bullion and expected the strength of the dollar against major currencies. The U.S. brokerage said it lowered its 3-month outlook to $745 an ounce from its previous view of $890 an ounce. Goldman also cut its gold forecast to $810 from $905 on a 6-month basis and to $740 from $810 on a 12-month basis.

So central bank intervention could arrest the great gold rally

Moreover, central banks around the world are keen on adding more gold to their reserves. Why? 

Because gold is one of the few assets that isn’t someone else’s liability and that is attractive in a debt crisis. In short, the central banks might want to dampen the rally so that they can buy in at lower prices and what lasting impact that will have on gold prices only time will tell.