Here is what’s happening with GOLD right now (macro view) :
1. After aggressive rate hikes by all governments, we’re now nearly guaranteed to enter a GLOBAL recession
2. During a recession, people lose jobs which means companies lose customers and hence their earnings fall
3. All of this is happening at a time when the interest payments are now at the highest level they’ve been in decades
When customers can’t pay their loans + companies can’t pay their loans = governments in turn can’t pay off their loans because of the depressed tax revenue from domestic consumption and business activity.
This is what’s driving gold higher; the risk of a sovereign (government) debt crisis. For the most part, developing nations will be hardest hit because they were already poor in terms of currency strength, GDP and they have a heavy debt load going into this higher rate environment.
Since over 70% of the world's debt is in USD, countries have to buy USD to pay back their creditors. For this reason I expect the DXY (dollar index) rally from 2021 to pick back up later this year.
Even though we normally see DXY and XAU as inversely correlated, in this kind of environment we could see both of them rallying together as some countries scramble to buy USD to pay their loans and other countries scramble to buy XAU as an insurance policy.
But this doesn't mean it's going to be a one way ride higher for XAU. There will still be profit taking and re-buying which is why we are currently looking for signs to get short on the "profit taking" phase.
Expecting Yields and DXY to reverse higher this week. This will be the catalyst to the larger selloff in XAU.
1. After aggressive rate hikes by all governments, we’re now nearly guaranteed to enter a GLOBAL recession
2. During a recession, people lose jobs which means companies lose customers and hence their earnings fall
3. All of this is happening at a time when the interest payments are now at the highest level they’ve been in decades
When customers can’t pay their loans + companies can’t pay their loans = governments in turn can’t pay off their loans because of the depressed tax revenue from domestic consumption and business activity.
This is what’s driving gold higher; the risk of a sovereign (government) debt crisis. For the most part, developing nations will be hardest hit because they were already poor in terms of currency strength, GDP and they have a heavy debt load going into this higher rate environment.
Since over 70% of the world's debt is in USD, countries have to buy USD to pay back their creditors. For this reason I expect the DXY (dollar index) rally from 2021 to pick back up later this year.
Even though we normally see DXY and XAU as inversely correlated, in this kind of environment we could see both of them rallying together as some countries scramble to buy USD to pay their loans and other countries scramble to buy XAU as an insurance policy.
But this doesn't mean it's going to be a one way ride higher for XAU. There will still be profit taking and re-buying which is why we are currently looking for signs to get short on the "profit taking" phase.
Expecting Yields and DXY to reverse higher this week. This will be the catalyst to the larger selloff in XAU.