What Is A Gold Supercycle ?

Get Ready For The New Gold Supercycle – Here’s What You Need To Know

Are you ready to benefit from a new gold supercycle?

A golden super cycle is an extended period of time marked by sustained and unprecedented increases in the price of gold. During these periods, investors have experienced significant returns on their investment portfolios. It is important for those looking to take advantage of this potential asset-price breakout to understand the different factors that could influence its future trajectory. This article provides insight into what needs to be taken into account before investing during such times so readers can maximize their profits or at least limit risk exposure.

The Role of Gold in Economic Context

Inflation, in combination with a slowing economy, is where gold really starts to make sense in a portfolio.

We watched the central bank shift from dovish to hawkish as a bull market in risk assets accelerated. Many column minutes and broadcast minutes were also devoted to the gold question of why the precious metal underperformed in an environment seemingly designed to shine.

It is important to understand that not all the conditions were present in 2021 for gold to work. The uncertainty was definitely there due to the continuing waves of the pandemic, and inflation was obviously on the rise, despite repeated efforts to minimize it. However, the dollar also experienced movement following the bottoming of the DXY in December. Real returns remained confined to a mid-percent range throughout the year, reflecting a trend of more or less consistent declines over the past two years.

Furthermore, despite inflationary pressures, economic growth (real or as a result of base effects) was also a persistent headwind for gold, as it topped $2,000 in August 2020. Inflation and growth, side by side, they provided the fuel for risky assets. to fly, and an attitude of not fighting the trend prevailed among fund managers despite reservations to the contrary. Inflation, in combination with a slowing economy, is where gold really starts to make sense in a portfolio.

What Causes The Recent Movement In Gold?

The markets were hit hard at the end of February. For events like The Russian invasion of Ukraine, Brexit referendum and the election of Trump. Before the onslaught, the worst the market had to fear was the Fed withdrawing liquidity and raising rates faster than it could handle. On the surface, this goes some way to explaining the recent movement in gold.

Gold returned most of those gains, closing the week below its February 14 high of $1,900. The reason for this was that real yields fell sharply when the bond offerings arrived, while inflation remained high.
To confirm more than a short-term move, the bulls would like to see real yields continue lower and the USD move lower as well. Currently, the $1900 level is key, as it marks the weekly high from February 14, as well as the weekly high from May 24. A drop below $1,900 brings into play the $1,870 weekly low from November and the prospect of further consolidation.
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Setting the Stage for a New Gold Supercycle

Gold Bulls Eye Historic Supercycle Breakout Level

Nearly 12 years ago, on September 1, 2011, I pointed to “the power of the pattern” and suggested that “gold should remain stable for years to come.”
And if you look at the chart below, you can see that this played out as expected.

Fast forward to today (12 years later), and gold is trading around $50 higher… and nearing a possible change in character once again.

Identifying New Supercycle Indicators

Looking at the long-term monthly chart for gold today, I am of the opinion that the stage is being set for a new gold super cycle to begin. 12 years higher, followed by 12 years on the side, followed by…
So where does it start? On a break above the resistance at (1).
Should this occur, we have a 161% Fibonacci extension target near $3,000 and a 261% extension near $5,000.
It is probably a good idea to keep an eye on this breakout level. Stay tuned.

Market Response and Gold Price Movement

Gold prices resumed their advance on Friday, reaching fresh six-week highs, as the US dollar weakened on lower Treasury yields. In the absence of major events, investors continue to follow signals from risk flows and the bond market.

At the time of writing, spot gold, XAU/USD, is trading at $1,950 an ounce, 1.6% above its opening price and on track to post a weekly gain of 4.5%, the third in a row.

Uncertainty regarding the banking sector and how central banks will respond is keeping investors on edge, fueling demand for safe-haven securities such as government bonds and the precious metal. The fall in US Treasury yields has helped prop up gold prices. The US 10-year bond yield fell to 3.45% (-3.6%), while the 2-year rate stands at 4.02% (-3.5%).

The US data showed that production industrial stagnated in February, while the University of Michigan (UoM) Consumer Confidence Index deteriorated in March. On a positive note, the UoM 5-year inflation expectation eased slightly to 2.8%.

All eyes now turn to the Federal Reserve policy decision next week in the light of the banking crisis, with markets expecting a 25 basis point rate hike this time around.

Expert Perspective: Wells Fargo’s View

Clash Coming’: Worst Case For Gold In This Supercycle Is To Double, Wells Fargo Is Eyeing $3,000

Signs of a coming crash emerged over the weekend with the collapse of Silicon Valley Bank (SVB), turmoil at Credit Suisse this week and fears of contagion risk.

The world with 2% inflation no longer exists, and governments and central banks will take time to accept it, LaForge warned.

“The Federal Reserve is going to have to start to come to terms with the idea that 2% inflation is not a world we live in anymore, and the supercycle is part of that,” he said. “They’re going to have to start steering things more towards 3% or 4% inflation, or something could go wrong. Getting the authorities, whether it’s central banks or government officials, on board with that takes a while. Along the way They’re going to make mistakes.”

Gold has underperformed for the past three years, since reaching record highs above $2,000 an ounce in mid-2020.

“Now he’s underrated,” LaForge said. “If we look at the main driver for gold out of the super cycle, it’s debt levels. Gold is the safe trade in a world where governments will have to figure out how to service debt at a time when interest rates are rising.”

Based on historical analysis of commodity super cycles, gold will at least double and Wells Fargo is looking at the $3,000 target.

“Your worst case in a supercycle is gold doubling,” LaForge said. “Technically, a supercycle has to be flagged with commodities as a group. And that was in March 2020. At the start of this new supercycle, gold was at $1,500. So based on past cycles, you’re probably looking at $3,000 in a minimum.”

Gold could be the big surprise that markets are undervaluing this year, added Wells Fargo’s head of real asset strategy.

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