Today one of the greats in the business said we may have already seen the all-in signal to buy gold.
Stephen Leeb: “Sometimes an answer is staring you in the face while you are gazing elsewhere. That describes a eureka insight I had about the gold market this past week…
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As you know, for a while now I have believed the all-in signal for gold would be China’s launch of an Eastern oil contract denominated in a composite renminbi/gold currency. Until that launch, I’d cautioned it would be premature to back up the truck and buy gold with both hands.
Signal That Gold Will See Its Most Explosive Gains
Well, I’ve modified that view. Yes, an Eastern oil contract will still be an important event. But now I believe it will mark not the initial all-in signal that gold has usurped the dollar, but rather the stage in gold’s rise in which the metal will make its most explosive gains. That’s because I now believe the all-in signal already has occurred, marked not by one dramatic moment or event, but coming in the form of a gradual change in the relationship between gold and other markets, including the dollar.
It suddenly seems obvious to me that gold already has begun to usurp the dollar’s role in important ways, a process that will continue and accelerate. And that means you’re probably safe in backing up that truck here and now. While gold could still dip a bit, the likelihood of a big drop is very low, while the upside remains telephone numbers.
Here’s what I missed. I have talked a lot about China, about its growth, its farsighted One Belt, One Road and other initiatives, its lead in supercomputers and cyber security, and more. As measured in international dollars and trade, China already is the world’s largest economy. Equally important, it has become the hub of Eastern world economies and the developing world at large. All of which I have been arguing would ensure ultimate Chinese control of key financial, commodity, and currency markets.
China Rules The Global Markets
But reviewing the behavior of these various markets over the past year and a half, it suddenly has become clear they already are dancing more to China’s tune rather than to the U.S. dollar and other American markets. The dynamics of worldwide markets have changed in highly significant ways, and these relate to gold.
I’ve noted before that 2016 marked the year in which China’s importance to the financial markets revealed itself. At the year’s start, the extreme volatility in China’s currency and stock markets sent our stock market to its worst January on record. Once the Chinese appeared to have the situation under control, our market quickly righted itself.
What’s striking is that the most accurate lead indicator that the volatility was temporary wasn’t the dollar, or bonds, or even China’s equity markets. It was gold, which bottomed several weeks before both the S&P 500 and the Chinese market. Realize how unusual that was. With our markets trembling in the wake of massive turmoil, you would have expected gold to rally strongly because of that turmoil, not in anticipation of its end. But when the equity markets steadied, the gold rally, rather than petering out, accelerated. Similarly, a dip in gold signaled, about a month in advance, the small correction in stocks we had in the August–early November period.
We May Have Already Seen The All-In Signal On Gold
It is likely that late 2015-early 2016 was the all-in gold signal. It was then that the Chinese got religion concerning their markets. Now a bit more than a year later Chinese stocks have been accepted as part of international stock markets – as evidenced by Morgan Stanley’s recent acceptance of a major chunk of stocks trading on Chinese mainland exchanges as part of its emerging market indices. The gaps that used to exist between prices of the same stocks in different Chinese markets have been closed, and there’s now a clear link between China’s exchanges and the Hong Kong exchange. Bond markets, too, have become more open. Even the renminbi seems to have more of a mind of its own. In other words, China has made tremendous strides in opening its markets.
When analysts speak about gold and the dollar, they typically have pointed to how the dollar affects gold: a decline in the dollar leads to a rise in gold, a rise in the dollar leads to a decline in gold. But that is yesterday’s world. Today, rather than playing slave to the dollar, gold, now largely detached from the dollar, follows and sometimes leads the Chinese stock market. In other words, the Chinese stock market has become gold’s new touchstone.
Moreover, for the past 18 months, as mentioned above, peaks and valleys in Chinese stocks have led U.S. stocks. It is interesting how, with very few exceptions, even on a day-to-day basis the direction of Chinese stocks determines the initial action in the U.S. market. And more often than not, the U.S. market will close in the same direction as Chinese stocks. Remember the Chinese market finishes trading before U.S. markets open.
The Chinese Golden Army
That gold so closely follows and sometimes anticipates the peaks and valleys in the Chinese stock market is strong evidence the gold market recognizes the ascension of China and is already betting that gold will play a critical role in replacing the dollar, part of China’s plan since the late 1970s when the Chinese gold army was created.
One important, and frustrating, difference between gold and the stock markets is that although their peaks and valleys align, gold’s performance has lagged both China’s and U.S. stock markets since their bottoms in 2016. One possible reason – and I am speculating here – is that the Chinese may be selling some gold here, enough to keep prices from running away. After all, until they have all their ducks lined up, they wouldn’t want to see gold galloping ahead, which given the trend in China’s stock market and economy would be the tendency. But you can be assured that given the amount of gold held by China’s central bank as well as by Chinese citizens, the country doesn’t want to see prices fall much, either.
Once In A Lifetime Gains
This suggests that for now a gentle uptrend is the likeliest course. And I still am convinced that China at some point and in some form will start trading oil and other commodities in a basket of renminbi, with perhaps other paper currencies and gold. Once that happens, gold is likely to fly fiercely higher. So, to repeat what I said above, establishment of that Eastern benchmark in oil will signify the onset of gold’s most explosive gains. Meanwhile, investors who buy gold now have limited downside risk while facing almost certain once-in-a-lifetime gains.”
***The remarkable KWN audio interview with Gerald Celente has just been released and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***ALSO JUST RELEASED: Gerald Celente – The Twisted Fairy Tale Being Told To The Public And The Coverup CLICK HERE.
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