Will 2022 Be the Year of Precious Metals?

Hey There Income Hunters,


2021 was another year that saw goldbugs – investors especially and eternally bullish on gold – full of hope and anticipation for a blowout rally … that never materialized.


Bitcoin taking over as the safe haven was one reason given for gold’s underperformance, but the past few weeks proved that gold provides a “real money” store of value that is capable of providing true safe haven benefits.


CFDs on Physical Gold (Ticker: GOLD)

After peaking at more than $2,000 in the summer of 2020, gold corrected and a hawkish Federal Reserve pressured the precious metal into a low this October by pounding the table on transitory inflation. 


I’ve noted FOMC meetings in the red circles below … 



Today, I’ll share why I think gold traded the way it did in 2021 and how 2022 may be the year that converts the masses into goldbugs.

 

Gold Is Trading Just As It Should

After losing more than 12% when it hit a double-bottom low of $1,675 in the summer, gold has battled back to -6% and held strong in the wake of a Fed shift to QE tapering and a forecast for rate hikes.


Institutional money understands that for gold to truly break out confidence in the US dollar must be crushed.


Relative outperformance for fund managers is everything, and the initial rally for gold in 2008 and 2020 was based on anticipation of Fed money printing destroying the value of US dollars.


Below you’ll see the longer-term gold chart highlighting each of the rallies driven by 2008 and 2020 QE and fiscal easing:



A few observations …


  • The 2008 rally began well before the actual stimulation provided by Fed policy and the bank bailout

  • Similar to today, gold anticipated a change in policy early and hot money jumped in anticipating a devaluation in the dollar and allocation of funds into gold.  

  • However, also like today, the Fed did everything possible to strengthen the dollar, including manipulation of paper gold and tough talk on policy. 


This Time Will Be Different

While Jay Powell was pounding the table on transitory inflation, I was pounding the table about the debt trap the Fed was under.


By printing dollars, the Fed and US government slowly turned from net exporters of goods to  net exporters of currency to supply the world with dollars to be used in trade for oil.


It really is that simple!


The government behind the global reserve currency (in this case, the US) by definition must become a debtor nation to manage the flow of its currency.


Unfortunately, it can never end well, as the growing pile of debt suffocates the real economy.


Just look at the most recent projection of the US debt burden …



Bring It Home

Gold bugs are always bullish gold, but real investors know that gold doesn’t soar until a central bank admits it cannot meet its price stability goal and prints money in the face of inflation.


The Fed can talk tough all it wants, but once it starts weakening growth, it will shift quickly back to QE and possibly more extreme easing measures like yield curve control and digital dollars.


I believe we will get to that point in the next year, or maybe 2023 at the latest.


Stay tuned to Power Income for the real intel on how the Fed and US government policies impact the market.


Have a great week and as always,

 

Live and Trade With Passion My Friends,

 

Griff

 

 

 

 

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