ROSS NORMAN : Gold bounces – this is not 1980

Five things collided to prompt the sharp correction in gold … at $3500 gold hit a psychologically significant round number, plus gold hit an all time high, speculative positions were running hot, then Trump reversed … but perhaps most importantly gold also went through an all time high on an inflation adjusted basis, breaching the January 1980 high of $850 (which on a CPI deflator actually gives $3486).

The good news … the weak hands have sold and the steam has been taken out of a market which was arguably a little ahead of itself. In short, we are well positioned for fresh gains. 

But casting one's mind back to 1980, gold did exhibit a similarly parabolic rise, but arguably for very different reasons. It would be in an error in my view to assume that gold prices were headed for a decline, emulating the shape of the Burg Khalifa in Dubai. 

The primary motivations underpinning this rally continue. Unsustainable debt levels, coupled with an unstable world, supported by de-dollarisation. You could add a pinch of future inflation or even stagflation if you like. Whichever way you look just now, it appears a gold price friendly outlook.

Ross Norman

ross@metalsdaily.com