Corona Vs 2008: The Difference Is Inflation

Tuesdays are often a weak day for gold.  Where there is weakness there is opportunity, but is that opportunity here today?

Gold is in a trading range between $1670 and $1785, and I believe the odds of an upside breakout are about 67%.

That breakout would target the $1900 area.

There’s also a bear wedge (defined by the thin red trendlines on the chart).  That wedge is doing battle with a big inverse H&S bull continuation pattern. 

While the odds favour the bulls, some respect must be given to the bear wedge, at least in the short term.

What’s the difference between the financial crisis of 2008 and the Corona crisis of 2020?  From a financial perspective, both are the same.  They are “failure to prepare” and “failure to save” crises. 

Governments from the left, the centre, and the right all have failed to prepare themselves or their citizens to handle war, famine, disease, and financial hardship.  Propaganda about “big growth”, military-driven regime change, and debt worship have been the themes… instead of bomb shelters, food depots, germ warfare preparation, and saving money (both fiat and gold).

Governments have no savings, Western citizens have almost no savings, and the outlook for future savings is bleak. 

In 2008, central bank money printing and government borrowing was deflationary for the mainstream economy because the money went to financial markets, banks, and governments.  The banks didn’t put the money into the mainstream economy.

I’ve suggested that this time is different. There is still enormous money being printed and poured into financial markets, but small business lending programs are in play, and this may be only the beginning of printed money that flows into the mainstream economy.

Dave Kelly, chief global strategist for JP Morgan Asset Management, says this about the future: “(US govt) Borrowing at this pace, particularly when other governments around the world are also running fast-rising deficits, might be expected to result in higher interest rates, even in a deep recession.”

The stunning GDX breakout chart.

Employees are being paid more to stay home than they received when going to work.  Businesses are getting money for customer sales that don’t exist. 

This is how significant inflation is unleashed.  It takes time.  The power of the dollar is a key factor to consider; with about 60% of all transactions in the world taking place in dollars, the central bank can print a lot of money and not create real economy inflation… as long as the money goes to government and financial markets. 

That’s starting to change.  The winds of real economy inflation are beginning to blow.

The DIA stock market ETF.

Since the lows of 2009, US stock market rallies have taken place on falling volume.  The US stock market has become the “poster boy” for the economy.  It’s mainly because of Fed support and the rallies have been accompanied by relentless government propaganda.

The stock market surged on possible but shaky vaccine news, but when the vaccine news was announced as false by the vaccine company, the stock market gave back nothing.  This is an ominous sign that governments and central banks are propping up the stock market… while the real economy melts into the abyss without trillions of dollars of government handouts.

The silver chart.

Silver looks “ho hum”.  I like that, because it fits with the big picture; the winds of real inflation are beginning to blow (as they did back in 1966), but it’s only the opening act of this show.

A Corona vaccine is probably 12-24 months away.  Government propaganda would reach record levels if a vaccine was produced in even modest quantity.  The stock market would almost certainly surge to a new high, but the real economy would still be receiving enormous amounts of government handouts.

Those handouts would be spent maniacally by the citizens in celebration of the vaccine, and more handouts would almost certainly follow.  From there, the inflationary genie would rise out of her bottle and silver would soar.

The SIL ETF chart.

A nice inverse H&S bull continuation pattern appears to be forming.  With handouts to mainstream economy spenders ramping up, investors need to get poised now… to profit from the imminent inflationary action!

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Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form.  Giving clarity of each point and saving valuable reading time.

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Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualified investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:  

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