“As it looks right now, Gold is only in the fourth inning of a nine-inning game when it comes to the long-term trend.”
There are no earnings reports for gold, no p/e ratio and no CEO or board responsible for gold’s outlook.
The “yellow metal”, as it has been referred to for decades, is on a roll through as the fundamentals continue to suggest that the bull run for Gold is still in the early stages.
The Fed has been shifting its policy and outlook over the last two months as it adjusts to several fluid events from the new Administration. Those are the only fundamentals that count for gold right now.
As a result, the gold bulls have started buying again, and this time they’re going to be joined by a much larger majority of institutional and retail investors.
Bottom Line, you’re missing out if you’re not already holding or buying gold after you read what’s going on…
All Roads Lead to Inflation”
Those were the words of Paul Tudor Jones in October. Just before the election, the hedge fund was commenting on the presidential elections that were only weeks away.
When asked about which candidate would be better for handling inflation and the economy Tudor warned that it didn’t matter which candidate won, “All Inflation isn’t dead yet, it’s just taking a break until after the elections. That was just the beginning of the message that Paul Tudor Jones delivered to investors in October.
After that, we’re going to see a crushing government debt burden force the United States to shift into hypergrowth mode to outgrow negative effects of that debt. This view is held closely by several hedge fund managers including Ray Dalio.
These hedge fund manager – considered some of the wise men of Wall Street – are warning that we’re heading towards another surge in inflation and there are already signs that he’s right.
This morning’s Personal consumption expenditures (PCE) price index
Inflation is neither improving nor getting worse according to this morning’s PCE data. The quick decline in inflation as ground to a stop as inflation is at a point of parity.
The data dropped as another Fed Governor (Bowman) was speaking live to a group about the Fed’s need to wait before considering any further drops in interest rates. The number of Fed governors making the same claim is growing, meaning that the interest rate dynamic is changing fast.
The Trump Administration is Gold’s Strongest Fundamental
This is the big problem.
Investors woke to renewed talks of the 25% tariffs on Mexico and Canada on Friday. This is a problem.
During his FOMC press conference this week, Fed Chairman Jerome Powell commented on the myriad of changes that are coming from the Trump Administration. The Chairman said that the Fed was taking a “wait-and-see” approach to the policy changes as they may have a large impact on inflation and the economy.
Their worry is that tariffs are almost certain to result in inflation.
Tariffs can drive inflation by raising prices on imported goods and increasing production costs.
This reduces competition and may lead to higher domestic prices. Effects vary by tariff scale, affected goods, and economic conditions.
The Fed could be forced into adjusting its policies with higher interest rates, not lower, to counteract these inflationary pressures.
This, and anything else that can be said about inflation, tariffs, GDP, interest rates and anything else that investors watch can be summer up with one word…
Uncertainty
What About the Economy
You need to look no further than the bond market for a hint on the economy.
Four months ago, the “long end of the curve” (20-year bonds) was emerging out of a bear market.
The iShares 20+ Year Treasury Bond ETF (TLT) had been in a long-term bear market trend since February of 2021. In August, among speculation that the Fed was set to start lowering rates aggressively, the TLT shares started to climb out of their bear market trend.
But things have changed.
The Fed has sidelined themselves when it comes to lowering rates for the near future as they wait to see what new fiscal policies will do to the economy.
The bond market, it’s trading near its 2023 lows as the fixed income market threatens to break into a deeper bear market.
Short-term rates? They’re closing in on their 2023 highs, the same level that we saw as inflation was dealing a crushing blow to investors and consumers.
In short, the massive rally in stocks has happened as the bond market and interest rates have almost completely reverted to their inflation era status.
Institutions have been hedging their portfolios, it’s time for investors to do the same.
What Happens from Here
Gold takes off again. It’s as simple as that.
Paul Tudor Jones recommended that investors buy gold or Bitcoin to hedge the risks that another round of inflation and higher interest rates would deliver to stocks and bonds.
Gold – by way of the SPDR Gold Shares (GLD) is 44% higher over the last two years, and the run isn’t over yet.
The run on gold started with central banks around the world increasing their demand for Gold and we’ve seen the “trade” trickle down through the market.
For all the buying that’s been done, including the trendy Costco gold bars, Gold still hasn’t reached a euphoric stage.
There are still signs of pessimism out there indicating that Gold’s “wall of worry” is much higher than where the market has climbed.
Historically, Gold is a trending asset, until an uncommon set of circumstances come into play, then it turns into a stronger than normal trend.
The last time we saw these circumstances kick in, 2006 through 2011. Gold appreciated almost 300% as it held an incredibly strong trend.
As it does today.
The U.S. Gold Fund’s 50-day moving average just shifted back into a bullish trend.
These trend shifts happened several times in 2023 with the last two resulting in aggressive 17% rallies. In other words, Gold is getting ready to leave the station to roll higher again.
Two ways to trade the long-term trend in Gold
The first is simple.
Don’t go to Costco or your local coin shop, open your brokerage account and consider the SPDR Gold Shares (GLD) as a long-term trade for gold.
You are not guaranteed to have gold delivered to you by holding the GLD shares. If you want to tuck an ingot away in your safe or an old Hills Brothers coffee can buried in the back yard, the GLD shares are not for you.
If you’re interested in being able to liquidate your gold holding anytime that the market is open and have that cash available then the GLD may be the right way to hold gold.
It’s a buy and hold trade.
Current prices are $258 and our target for the GLD shares for 2025 is $350.
As it looks right now, Gold is only in the fourth inning of a nine-inning game when it comes to the long-term trend.
Leverage the Move in Gold
More aggressive traders may want to leverage the move in the Gold Shares using options.
Don’t bother with short-term one-month or even six-month expiration options. The trend is your friend here.
Consider the January 2026 expiration LEAPs.
You’ll get the advantage of leveraging the long-term trend along with the smoothing effects of a longer-term option. This means that the short-term volatility won’t keep you staring at your screen.
The January 16, 2026 GLD $280 calls are currently trading for $800 per contract. That’s the price of about than three shares of the GLD, but you control 100 shares with the option.
This option would be worth a minimum of $7,000 in intrinsic value if the GLD shares hit that $350 target anytime between now and January 16, 2026.
Four shares of the stock would be worth $1,400 in the same situation.
Both the buy and hold and the long-term call option are effective ways to position for what looks to be another banner year for Gold.
As always, please make sure to educate and get experience using options as an investment before executing the strategy “real time” in an account.
— Chris Johnson
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Source: Money Morning