The New Gold Rally! – Gold Shines In A World Of Negative Interest Rates

Chris Vermeulen

Gold has a clear presence to play out in this new world, which is now dominated by global economic uncertainty.  Gold’s importance in today’s environment was clearly visible during the massive rally at the beginning of the year, when all other asset classes were tanking. Investors piled into gold on the scare of a likely global financial crisis!

The FED’s release of the minutes of their April 26th-27th, 2016 policy meeting halted the rise in gold. Expectations of a June rate hike led the bulls to liquidate their positions, bringing the gold price back to the support levels of $1190 to $1200.

However, just as gold was threatening to break below its support level, out came the shocking report of non-farm payrolls data indicating a mere 38,000 new jobs. Not only was the data the worst since September of 2010, but it was well below the most pessimistic expectation on Wall Street.

Investors across all levels of experience are attracted to gold as a solid, tangible and long-term store of value that has historically moved independently from other assets. My analysis shows that gold will be implemented to protect global purchasing power -- and minimize losses during the upcoming periods of market shock. It serves as a high-quality, liquid asset to be used when selling other assets that would otherwise cause losses. In this manner Central Banks of the world’s largest long-term investment portfolios use gold to mitigate portfolio risk – and consequently have been net buyers of gold since 2010.

Investors should make use of gold’s lack of correlation with other assets, which makes it the best hedge against currency risk.

Another crucial event occurring is the Brexit referendum, which is to be held on June, 23rd, 2016, when citizens of the UK will vote to decide whether they should stay in or leave the European Union (EU). The financial implications of a Brexit vote may very well spell out disaster for the Euro, as well as the global economy.  The latest polls point to a lead for the Exit camp.  If the UK does leave the EU, experts believe that the remaining nations such as France, Greece and the others may also opt out of the EU, hence, ending the ill-fated experiment of a United Europe and the Euro currency.

The birth of the Euro was easy. However, if nations begin to exit the European Union, it will cause the collapse of the Euro which is the second most held reserve currency in the world. Consequently, this will lead to disaster. Nonetheless, if the referendum votes to stay in the EU, it casts doubt over the longevity of the Euro. 

Commodity Guru, Jim Rogers, refers to the US dollar, which is the Foreign Reserve Currency of the world, as the most flawed currency. For reasons explained above, the Euro is presently in danger of vanishing altogether. In the event of a Brexit, the pound sterling, the third most held reserve currency in the world, will be sold-off. The fourth most held reserve currency in the world, the Yen, is also at great risk. The reason is that Japan is sitting on a debt to GDP ratio of 229. It would be only a matter of time before Japan would default.

The world’s top four currencies in danger of losing their value are now most likely to bring an end to the era of fiat currencies.

Indubitably, gold is the only other asset class which can offer any kind of tangible value to the world.

The chart of gold shows a good rounding bottom, as well as displaying a saucer formation.

Moreover, the recent correction has completed the ‘handle formation’ - as shown in the chart below. Right now, a breakout above $1300 will confirm a long-term bottom formation.

Gold’s first upside target is $1300; followed by the next target of $1400. The pattern target of a breakout from the rounding bottom formation is $1550.

Gold’s fundamentals and technicals are both attractive at their current levels. In view of the world’s fragile economic situation, this is probably the last opportunity to buy gold at these levels before it explodes higher!

There are many ways you can take advantage of this pending new precious metals bull market, which I will share in my next article.

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