Markets

New year’s rally for gold this year too?

Current market commentary by Markus Blaschzok for GoldSilbershop.de

The year is drawing to a close and with it possibly also the correction on the gold and silver markets. The correction of the previous sharp rise takes over three and a half months. In the past eight years, the gold price has almost always bottomed out from mid-December to the New Year, only to rise again with renewed vigor in the new calendar year. In view of the already relatively long correction phase, a continuation of the pattern is conceivable. However, there are also political risks that contradict this and could weigh on the gold price again well into the new year. The redistribution of money via the printing press to alleviate the short-term financial problems of businesses and consumers suffering from the renewed lockdown in parts of Europe and the US is currently delayed on both sides. As a result, there is a lack of new central bank money in the current recession to combat deflationary tendencies, which are getting stronger again with the growing credit contraction due to increasing corporate bankruptcies.

Chart

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In seven of the last eight years, the gold price ended its correction at the turn of the year

In the US, the election of the 46th president has still not been decided and Republicans and Democrats are fighting for the highest office and a majority in the US Senate. The fronts have hardened and there is an open conflict between America’s two major parties. The economic package of two trillion US dollars long hoped for by the stock market bulls is therefore on hold and may not be approved until the new president is sworn in on January 20, 2021. Even then, time will probably pass before the checks are finally sent to the population. Depending on who can win the election and win a majority in the Senate, the aid package could be much smaller than the bulls would like. US and EU – a similar situation

The situation is similar in Europe, because here Hungary and Poland are using their votes to prevent the passage of 1.8 trillion euros for the EU budget and the “Corona Reconstruction Fund”. Poland rejects further integration via the rule of law mechanism with which the EU can ultimately cut funding if a member state is not on the common line. Poland and Hungary wish to be independent nations in a union of states in a single market, whereas they reject the EU superstate. The moment is used to call for resistance against a Union that has become too powerful.

The Polish Prime Minister Mateusz Morawiecki said that the weak members of the Union would be cornered by the rule of law. Viktor Orban even fears that the EU could become a “second Soviet Union”. While the advocates of an EU superstate are hardly prepared to accept a watering down of the rule of law mechanism, Poland and Hungary are no longer concerned with money at this point, but with their identity and national sovereignty.

The European Union is at a political crossroads, just like the US, which is currently as divided as it was before the civil war. In the US election, parties face each other with values ​​and ideas that couldn’t be more contradicting each other. The political inability to act ensures on both sides that the recessive market forces regain the upper hand and deflationary effects could become a problem for the bull market.

In March the US government put together a stimulus package worth $ 2.2 trillion, but eight months later it is already beginning to lose its inflationary effect. The banks could get into trouble due to further loan defaults and a wave of bankruptcies threatens to put a nominal burden on the markets themselves, while they have been in a real bear market since last year. This is why JP Morgan’s CEO, Jamie Dimon, for example, is urging the US Congress to pass a second stimulus package. In Europe, the ECB sees loans with a volume of 1.4 trillion euros as endangered, which could bring the weak European banks to the edge of the abyss if they fail.

The lack of inflation at the end of the year could now lead to a correction on the stock market and the precious metals market in the next few weeks. However, we anticipate that new liquidity will be available to the markets towards the end of the year or at the latest by the end of January, which means that further bankruptcies and defaults can be postponed. The new debts will be financed by creating money out of nothing through the central banks as the buyer of the issued government bonds, which will devalue the euro as well as the US dollar. Gold and silver should then end their correction and target the previous year’s highs again. In the new calendar year, we expect further massive inflation in the central bank money supply and thus a further rise in precious metal prices.

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