Get Ready For The Transition From Bonds To Gold

Recently, there has been a huge bubble forming in what people “feel” is always a “safe” financial instrument….treasuries!

And much of the time they are right. However, any financial instrument can get ahead of itself and form a bubble as “everyone gets the same idea at the same time”. Well, that is what has happened in bonds as money got scared and ran for the hills.

The 30 Year Treasury Bond Goes Parabolic!

Those hills ended up being U.S. Treasuries, the U.S. dollar and the Japanese yen. In the past, I’ve covered the inflows into these and where some of the outflows will go.

Here’s where some of that “bond bubble” money is going.

Now I want to talk about one more place that money will go when the bond bubble eventually busts. It will go into gold.

In the past you’ve heard me talk about the money going into stocks and commodities in general once the bubble bursts but I want to get specific on gold for a moment.

I’ve been watching gold very closely recently because I’ve seen it “overcome some recent obstacles” that most financial instruments can’t seem to do just yet. Let’s look at it below.

Gold is poised to break out into “all time highs”!

Gold has recently come back up above its 50 day simple moving average AND its 200 simple day moving average. This gets the big hedge fund’s attention that pay a lot of attention to the technical analysis side of things. These are bullish signs to the technician.

One more bullish sign to the chartist is the “bull flag” formation that is forming as pointed out by the green and red lines. A flag like this forms when prices need to consolidate and “take a breather” after a large run up.

Afterwards, it will break the top red line and head for “new all time highs”. You will see gold reach $1,200 to $1.500 an ounce in 2009 or at latest 2010.

The investor that gets poised for it now can ride that “wave” higher just like a surfer waiting for his wave to come along.

The fundamentalist knows that when the Fed cranks up their printing presses until they are almost smoking (like they are now), that huge amounts of inflation are born out of this. They also know that the dollar becomes more and more diluted and thus there’s a reason to run to what the gold bugs refer to as “real money” a.k.a. “gold”.

Therefore the technicians are buying on strengthening price action over major moving averages. A 2nd round of technicians will “buy the break” above the top red line of the flag formation.

The fundamentalists will start buying even now and through the year on each “gold pull back” that comes along as they build positions for the next wave higher.

Both camps will likely be “richly blessed” as all of this unfolds. Many will not see this coming and they will scratch their heads as they thought they could put the “tombstone” on any further rally in commodities.

However, commodity “bull runs” tend to last for very long periods of time. It’s just that they have very, very severe pull backs along the way. Many investors think this means that any future upside in them is “dead and gone”. But they will be very surprised to see gold “shine” once again.

This rise in inflation will help stocks and commodities in general as well as foreign currencies (as the U.S. dollar is further diluted).

Posted in Categories: Commodities, Contributor, External Research, Japan, Money Markets, USA.

Subscribe by RSS Subscribe by Email