If you have been paying any attention at all to the financial news headlines in the past few weeks then you know that the US Treasury Bond yield curve is inverted and that the Federal Reserve is positioning itself to lower interest rates before this year is over.
What does this mean for the price of gold?
Well check out this chart with the price of gold and the yield curve on the bottom of it.
The indicator on the bottom of this chart is the gap between the 3-month and 10-year US Treasury bond. As you can see it is now below zero, which means that the interest rate on the 3-month bond is higher than that of the 10-year.
This is the very definition of an inverted yield curve and forecasts a future slowdown in the economy and future interest rate cuts from the Federal Reserve.
Now as you can see this has happened twice in the past twenty years and both times it did gold soon broke out of a long-term resistance level to launch big massive gold bull runs that lasted for years.
From 2000 to 2002 the long-term resistance level was $300 an ounce and in 2007 it was $700 an ounce.
Today that level is really $1,350 an ounce and gold is at this moment consolidating below that level.
What happens is that an easy money Federal Reserve policy tends to bring people into gold as a hedge against the risks of inflation and simple monetary instability that rapid shifts in the policy of any central bank can bring.
The action is starting to get the of those that follow the gold market closely such as Jordan Roy-Byrne who runs the website www.thedailygold.com.
Jordan has been skeptical of a gold breakout all year and last year too, but now has shifted his stance thanks to the coming rate cuts. I talked with him about this in this interview I did with him last week.
Once gold goes through that and beyond $1,400 I expect we’ll see it go up for years just like it did after the previous two times that the yield curve inverted.
The major gold funds such as GLD, IAU, GDX, and GDXJ will thrive.
This is why I think people need to begin to get involved in gold now before this price action begins and the price starts to run away from people.
Of course, the right gold mining stocks will go up much more than the price of gold will.
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