Martin Weiss put out a very interesting piece tying together various rising political tensions in the Ukraine, tensions between Japan and China in the East, and rising tensions in the Middle East with rising levels of inflation. Again, I think my Inflation-Deflation Watch [IDW] is telling us that whether it makes sense or not, we are now starting to see a breakout in inflation, at least in terms of overall asset prices.
Until now, the commodity sectors of my IDW have kept that index subdued, but now that copper and energy prices are starting to show renewed strength and Chinese and Indian stocks started to rise even as stock prices in the U.S. continue to make new highs, there does not seem to be a major sector of my IDW that is holding down inflation overall.
Sure, the natural drag of excessive debt is subduing prices to this point, and if central banks truly engaged in tapering of money printing, we would still see a deflation to beat all other deflations. But once the velocity of money starts to pick up, it can have a self-reinforcing momentum of its own. So I think Martin Weiss could be right. We may well start to see a major breakout in the price of gold in line with an increase in overall global price increases, which by the way are being affected by the reduction of global trade of commodities due to rising tensions in the Ukraine and elsewhere.
The first three trading days of July have continued an uptrend in the price of gold from the end of June. The average price of gold so far in July is $1,322.69, which is now nearing a potential cross above the 20-month moving average which in my view would be very bullish. We have talked about several technical analysts in this letter who think we have seen or are very near to the time when gold bottoms and then begins its next major leg up. Both Charles Nenner and Dr. Robert McHugh think we have one more leg down. Ideally, in McHugh's view we would go down to or about $1,200 before the next leg up takes place.
However, both Nenner and McHugh have now joined J. Michael Oliver's more agnostic view that we may or may not have seen the lows and that we could very well be posed even at this moment for the beginning of a massive rise in the price of gold as fundamental analysts like Weiss and Dan Oliver seem to believe. I should add to this list of bulls on gold, the name of Doug Grogh of the Tocqueville Gold Fund. Doug told me just last week that he thinks the party has begun for the gold bulls.