Gold faces near-term headwinds before insolvency trade
The case for gold is near-term cautious but long-term bullish, as speculative momentum money may exit on rate-hike fears before a sovereign insolvency crisis eventually drives the next major leg up.
The argument
The guest argued that gold's recent run was chased by hot, trend-following speculative money in GLD which could reverse if the Fed surprises with rate hikes. However, the long-term thesis remains intact because the market will eventually transition from a 'debasement trade' to a sovereign 'insolvency trade' as Western government debt levels become unsustainable.
The thesis, stress-tested
✓ What validates it
- ✓Outflows from the GLD ETF signaling speculative capitulation
- ✓Rising yields accompanied by a loss of confidence in US Treasuries, triggering the 'insolvency trade'
▸ Risks discussed
- ▸A standard Fed rate-hike cycle that draws speculative capital out of gold
- ▸Commodities like oil outperforming precious metals in the middle phase of the cycle
Hear it yourself
"Whereas the speculative money that goes into the GLD, that's a bit more trend following. And in fact, as a really good example of that, when did that volume start to accumulate in the GLD?"
00:00 / 00:14
AFFILIATE LINK · ZORTIX MAY EARN A COMMISSION · NEVER A RECOMMENDATION TO TRADE