Is inflation – and gold – about to spike upwards again?

Is inflation – and gold – about to spike upwards again?

The much-watched US personal Consumption Expenditure data for January was released on Thursday. While the headline rate was about in line, under the hood/bonnet there are signs some critical prices are not falling at all. For instance, services inflation is actually rising while goods prices moderate. And house rents continue upwards.

And for many of us, our own personal experiences are telling us that many prices are still surging. Here in the UK, much higher taxes and imposts are forcing tradesmen to raise their charges. The costs of home improvements for instance are still rocketing.

Historically, Gold has been the most sensitive barometer of overall price inflation much of the time – although there have been lengthy periods when inflation and Gold have diverged, especially in the 1970s. But are we on the verge of a massive Gold catch-up with the inflation numbers to be released later rising?

Are we entering a new Golden Age? If I am correct, then the implication is that inflation will reverse up and/or stocks will soon enter a strong bear phase in a flight to safety to Gold.

But such an idea is heresy to today’s stars-in-their-eyes investors as they chase Nvidia ever higher.

Gold has been remarkably calm for a long while. In fact, it has gone nowhere since August 2020 when it rallied to the first hit on the Big Round Number (BRN) $2,000 print.

From the Elliott wave 2 low at $1,800 in October 2023 – just as US stock indexes were also making their (in)famous lows, please note – Gold has advanced towards the $2,000 print but this move has been accompanied by declining interest in holding the metal.

So much so that volatility and open interest on Comex are at four year lows. Investors have taken on board the consensus view that inflation has been licked and the Fed has engineered the economy towards its 2% target. That is why they have shunned Gold as an investment. There are a lot more exciting prospects elsewhere – especially in Nvidia, they cry! Hedge funds have abandoned Gold in their droves as shown in the latest COT data.

But is that thinking correct? Just as Nvidia and the whole of the Big Tech sector have taken over sole stock market leadership, interest in Gold has collapsed. The gulf is an ocean wide – and thereby offers opportunity for contrarians.

The weekly Gold chart shows my best case Elliott wave labels. If correct, Gold is in the very early stages of a massive wave 3 of 3 of 3 (and 3). I believe Gold has the potential to be the Bitcoin of the Commodities (Cocoa is also trying for that accolade).

And loyal readers know what this means! In fact as I write this on Friday afternoon, Gold is up $30 already today to $2075 – bang on my ceiling (pink).

And with the Gold miners in the doldrums, can there be a massive opportunity here to pick up some very cheap solid shares?

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Nasdaq update

Last week ended with another big Nasdaq rally as everything was bought. This is updated Nasdaq chart from last week.

We remain at the final stages of the Elliott wave 5 of 5 up, as I have stated before. But note the huge mom div here. This is a huge warning that when the reversal occurs, it will be massive.

The action of Big Tech insiders can sometimes flag major trend changes. And recently, Zuckerberg (Meta) has sold chunks, as has Musk (Tesla). the Walton family (Walmart) and Dimon (JPMorgan) and Black (Apollo Capital) – the latter two being the first such divestments ever from them.

If there is one thing major insiders do not do is to sell shares when they believe they will still go up. Why should they? They are in no danger of being on the bread line – or are they?

A cautionary tale for Nvidia fans

I see the AI revolution as being at about the same stage as the EV revolution was back in early 2021. Then, investors were piling into all sorts of (loss-making) operations that were about to take advantage of the coming transition from the evil fossil fuel-powered vehicles to the shiny new clean green electric models.

Tesla was the leader of the pack and generated enormous sales around the world. But with sticker prices a lot higher than the equivalent ICE models, they appealed to the wealthiest only. Now, with that sector about tapped out, inroads into the lower income sector is proving a tad more difficult with the result that most if not all of the early EV manufacturers are bust or nearly so

chart courtesy

The chart of the EV Index must be a sorry sight indeed to the eco warriors that want the economy to go green and get to Net Zero by 2050, as mandated by law (!).

Incidentally, maybe the EV crash actually may result in lower CO2 emissions since it has been shown that the CO2 produced from making EVs from metal mining to the final sale and driving on roads is more than the ICE equivalent. ICEs are greener than EVs. What irony!

As you know, I have been a major bear on EVs as the hard-nosed reality of the auto marketplace was bound to get in the way of pie-in-the-sky visions of a smooth hand-over from ICEs to EVs.

So is the AI revolution similarly pie-in-the-sky? There is one crucial difference between the EVs in early 2021 to today’s state of AI. That is, EV makers were all loss making (but subsidy mining), but Nvidia (and a few others) is not loss making (to put it mildly!).

This puts the rationale behind investment in AI on a far different footing. But valuations in AI remain sky-high and the shares are priced for perfection with no challenge from other chip manufacturers (see last week’s blog) assumed. With investors seeing Nvidia’s real earnings as a major tailwind for the shares, they are perfectly primed emotionally to be totally unprepared for any setback.

My Cocoa Campaign update

Last week I outlined my cocoa campaign and last week I was stopped out on my trailing stop at the 6,200 ATH level. My first entry was at the 2,200 level last year and then at 4,010. That was one superb result and it resulted from my early identification the charts were tracing out a major wedge/triangle that held the prospect of such a major bull run. Of course, I had not idea back then the bull would elevate so high. We never do. As they say, you do not need many of these in a year to make a difference to your wealth!

Is Crude Oil heralding an inflation boost?

Late on Friday, this market surged past my $78 resistance target (that now becomes support). It hit my long-standing target at $80 briefly. So far, so good and if this continues, perhaps the inflation implications will start to weigh on the stars-in-their-eyes stock investors. But so far, they have been immune to any contra evidence as they have all moved over to one side of the ship with nary a bear on the other side. So far, both good and bad news remain good.

So will a small wave appear for the ship to start taking on water? And what would the small wave look like? Anything political to do with Gaza? Or Ukraine? Or maybe a disappointing earnings report? I have the feeling we will not have to wait much longer.

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