The Fun Is Just Getting Started

As long time readers know, gold acts as a thermometer measuring the health of the global economy.  A strong move up suggests the patient is running a high fever.  While the gold pullback is welcome, the patient is far from cured.  It is our expectation that the consolidation/pullback will be short lived.  Perhaps several weeks at most.  We then anticipate another strong move up in the gold market.

Some of the charts we are watching suggest big problems ahead for the US and world economy.

Consider the following:

That is quite a large bear flag on a weekly chart of the Vampire Squid.  If it can’t hold up, what risk assets can?

 The US dollar has been in a slow motion rising pattern for some time with increasing signs of weakness.  With rapidly falling bond yields (interest rates) is certainly appears to be ready to roll over.  Note that gold has been rising despite some dollar strength. What will happen when the dollar weakens to the index level of 95 or 91?

Yields on 10 year US bonds are plummeting.  16.8 translates to 1.68% yield.  2 year bonds are 1.66% today.  This means the yield curve is almost completely inverted as there is only a 0.02% difference between 10 year and 2 year bonds.  When the 10 year yield falls below the 2 year, a recession is almost guaranteed within 6 to 9 months.  And the Federal Reserve has only cut interest rates once, a quarter percent.

Overall, the bright picture of late 2017, early 2018 has dimmed considerably.  Central banks are essentially out of bullets as rates approach the zero lower boundary.  
Bond defaults will soon be on the horizon.
Got gold?