Gold: SWM 10/16/23

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• US treasury debt outstanding has gone from $22.7 Trillion to $33.2 Trillion over the past four years (9/30/19 to 9/30/23), and $30.9 Trillion a year ago.

• So +$2.3 Trillion over 1 year and +$10 Trillion over 4 years. The 12- month deficit is $1.7T per below, as of 9/30 (Treasury is on a Sept Fiscal Year)

• This deficit is running at almost 9% of GDP in a non-recession period. This is unprecedented. US debt to GDP is @ 120%. Canada is in much the same situation.

• There’s war in the Middle East and in Europe, gold inventories are low, a massive Cup and Handle is in place on the 20 year (lower chart) and central banks are buying at record pace.

• The most important thing in my view is, now we have a catalyst which is why those central banks are buying so aggressively in the first place. The US dollar, Bretton Woods II system in place since 1971, is changing; not dead, but changing on the margins. Maybe the most important economic event in the last five years, or maybe many more, was when the US government sanctioned Russia’s US treasury holdings after Russia’s invasion of the Ukraine, that changed everything.

• Foreign governments around the world used to hold as many US treasuries as they could. Now they hold only as many as they need. No longer just four nations, more nations are joining the “BRICs” in talks for an actual alternative currency. Nations involved in these discussions now have a combined nominal GDP north of US $28.06 trillion. Almost a third of the entire globe’s economy.

• Interestingly, prior to 1989 (USSR collapse), US official gold as % of foreign held US Treasuries was never less than 20%. Most of the time, it was closer to 40%, & in 1980, it was 135%. Today, it's 7%. Just getting back to the long-term average would mean a major revaluation in the price of gold. So, the macro reasons are aligned, and now we have a catalyst.

• Increasingly these days we are seeing constant reminders of the worthlessness of fiat currency. History is replete with examples on what happens when a nation (or all nations) spends and grows their money with no limits. The lesson is clear: land, bricks and mortar and yes even some equities in inflationary cases.

• My expectation is that gold, and silver, will reassert themselves and take a more prominent position in the currency system, acting again as a hedge against irresponsible government finances, and the potential volatility that eventually unfolds as developed countries turn into emerging markets nations.

Chart 1

SPDR GLD Shares ETF: Weekly 2 Years

(GLD)

• Gold has frustrated a lot of investors in the last few years, but I think things may be changing. The last three weeks have seen gold and GLD put in a classic reversal pattern. A big down week, followed by a hammer candle, followed by an even bigger up week. All of which suggest a turnaround to the upside (red circle), on growing volume.

Chart 2

Gold: Monthly 25 Year

• I’ve posted this chart repeatedly since 2020. Gold hit a high of U$ 1,923 in 2011 and has been consolidating since then to test $2000 again in 2020.

• Volume also declined towards the bottom of the “cup” and increased as it tried to break through $2000 again.

• As a security forming this pattern tests old highs, it is likely to incur selling pressure from investors who previously bought at those levels; selling pressure is likely to make price consolidate with a tendency to a choppy down period, like we’ve seen since 2020.

• Now testing those highs again, the stars appear aligned for gold, there is a new catalyst in place with unprecedented changes to the monetary system, and gold is following a well-known reliable technical pattern.