For the past decade, gold has been a serial underperformer. However, five signs suggest that it may be the precious metal’s time to shine, including:

A “Dovish Fed” is a Positive

The theme of the U.S. Federal Reserve was “Hawkishness.” A Hawkish monetary policy refers to a stance taken by central bankers that emphasizes a proactive approach toward controlling inflation, often involving higher interest rates and tighter monetary measures to cool down economic growth. However, after recent inflation readings have come in cooler than expected, the market expectations for the Fed Funds Rate suggest four interest rate cuts in 2024.

Image Source: Charlie Bilello, Creative Planning

Lower rates should be a bullish catalyst for gold prices because lower rates tend to weaken the dollar. As a result, investors will turn to gold as a hedge against currency depreciation.

Commercial Traders are Overwhelmingly Short

Commercial traders are entities or individuals engaged in business activities related to the underlying assets being traded (in this case, gold). These traders are typically involved in the production, processing, or distribution of commodities and goods. Commercial traders often use futures contracts to hedge against price fluctuations, managing the risks associated with their core business activities. Historically, traders want to fade commercials when it comes to the gold market. Currently, commercials are more than 70% short.

Image Source: amCharts

Price is Emerging from a Multi-Year Base Structure

As the old Wall Street adage goes, “The longer the base, the higher in space.” It’s difficult to find a longer base than the SPDR Gold Trust ETF (GLD). GLD is clearing highs not seen since August 2020. In my experience, the longer and more frustrating a base structure is, the better it works when it ultimately emerges. Furthermore, volume provided clues on Friday. Turnover was heavy at more than two times the 50-day average.

Image Source: TradingView

Massive Deficit + Interest on Deficit

The U.S. faces a mindboggling deficit of $34 trillion and is growing rapidly. As the 2024 election approaches, investors must accept that fact that Biden and Trump, the two overwhelming frontrunners, are not known for their fiscal conservatism. Furthermore, interest payments are swelling, ranking fourth in spending (only behind Social Security, Medicare, & Defense). In other words, don’t expect a budget surplus any time soon – the last surplus for the federal government was in 2001!

Image Source: U.S. Treasury

U.S. Sanctions & BRICS Demand