Gold Is “Within a Whisper” of a Huge Breakout

When gold goes down or stays flat, nobody in the mainstream press wants to talk about it. It’s only when the gold price breaks out, especially if it’s through a round number like $2,000, that the pundits suddenly take an interest in the yellow metal.

Now, CNBC is buzzing about the “case for gold fever” and trotting out financial experts to lay out the bull case for gold. Shouldn’t they have been bullish when gold was down to $1,800 in October?

We can forgive the johnny-come-latelys for a moment, especially since their pro-gold arguments actually have merit. Besides, buying gold at $2,000 is nearly as good as buying it at $1,800 if you expect it to double and triple from here.

Among the pro-gold pundits is “Fast Money” trader Guy Adami, who recently asserted that gold is “within a whisper of having a huge breakout to the upside.” I find it interesting that financial market commentators typically tend to predict a breakout after a breakout has already occurred.

Still, I’ll give Adami credit for his argument. He envisions a chain of events that would necessarily culminate with a rise in the gold price. “If rates continue to go lower, the dollar will go lower. That will be a tailwind for gold,” Adami explained.

Will the Federal Reserve actually lower interest rates in 2024, though? No one can make any guarantees, but currently the financial markets are operating under the assumption that the central bank will reduce the federal funds rate not just once, but multiple times next year.

Courtesy: Bloomberg

As I see it, there are a few different scenarios in which the Federal Reserve might start cutting interest rates. First, inflation could come down to the Fed’s 2% target. Second, the Fed could decide that 2% inflation isn’t necessary and that “close enough” is close enough if inflation comes down to, say, 2.5%.

Alternatively, inflation might not get to 2% but a black swan scenario could play out, such as a full-on recession or a banking sector crisis worse than what we witnessed in March and April. In that scenario, the Fed would have a perfect excuse to start cutting interest rates even though the 2% inflation target wasn’t reached.

Besides, with an election year right around the corner, the Federal Reserve won’t have the political impetus to continue squeezing the economy through higher-for-longer interest rates. So, don’t be too surprised if the Fed suddenly determines that 2% inflation isn’t the number-one priority anymore.

Another commentator who seems to be in the gold-bullish camp is NewEdge Wealth’s Ben Emons. Like Adami, Emons sees a connection between the Fed’s eventual pivot to interest rate cuts and big-time upside in the gold price.

According to Emons, gold “rallies when there’s this risk-on feel in the markets, and that’s really when real rates and interest rates are declining. This gives the gold a really good push for the breakout.” Will the recent upswing in gold be the start of a bigger move, though?

Courtesy: Bloomberg

No guarantees can be made, of course. As you can see in the chart shown above, gold has hit its head on $2,000 before and then pulled back.

This doesn’t deter Emons, though, since there’s a monthly seasonality pattern to be noted here. “It’s been very consistent every December. It’s been a pretty strong performance for gold — especially when there is a rally in the stock market in November,” he observed.

Indeed, November was a very strong month for stocks and this is a reminder that stock-market bulls can also be gold optimists. That’s one of the many positive points of gold ownership: you can hold a safe-haven asset and a growth vehicle at the same time.

Looking ahead, Emons has a specific price target for gold. “Central banks are again outbidding gold against dwindling supply, likely setting up the metal for a major breakthrough towards 2,100,” he declared.

Is this what “gold fever” looks like in the mainstream media? No matter, as the pro-gold case has been strong all along and it’s perfectly fine if round numbers happen to attract the attention of talkative pundits.