September 16, 2019

Gold has been on a tear lately. This has lead to many of you asking me why the precious metal is breaking out and if this is the start of the next bull market.

Gold is rallying primarily due to central bank issuing forward guidance. What I mean by this is that globally central banks have made it clear that they are going to be cutting rates and launching new QE programs going forward.

This is resulting in bonds around the world rallying to the point of having NEGATIVE yields. What this means is that the person lending the money is PAYING the person borrowing the money for the right to lend!

It’s insanity, but because bonds move based on interest rate policy, if central banks cut rates to negative, many bonds are going to have negative yields.

How many?

Currently there are over $15 trillion in bonds with negative interest rates. Gold yields nothing. But if bonds are CHARGING you money, a yield of zero is actually quite attractive.

This is why gold is rallying alongside the long-term Treasury ETF.

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Of course nothing goes straight up or straight down, and it would be quite normal for gold to correct back to test former resistance (red line) after its recent breakout.

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However, the long-term implication of that chart is that gold is going north of $3,000 per ounce.

Best Regards,

Deo Talaverano.

Chief Market Strategist DHF.

George Town. Cayman Islands.