Sweden May Have Just Pricked the Negative Interest Rate Bubble as Gold Nears Breakout

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(Money Metals Exchange) Precious metals have played second fiddle to the stock market this fall. Perhaps the winter solstice, which arrives on Saturday, will usher in a seasonal change of character in these markets when they open next Christmas week.

Stocks could get a Santa Claus extension to their rally. Christmas week gains are typical but not guaranteed. With the S&P 500 having gone essentially straight up for the past 11 weeks, the market is overdue for a correction.

Gold and silver, on the other hand, are overdue to break out from their sideways consolidation phase one way or the other.

The longer-term outlook for precious metals will depend largely on where interest rates and inflation head. We’ve heard in previous podcasts trends forecaster Gerald Celente say that negative interest rates are coming to the U.S. That would certainly bolster the appeal of hard money as a superior form of cash.

Other analysts believe the global negative yield bubble is an unsustainable aberration that is about to burst. On Thursday, Sweden’s central bank ended its five-year experiment with negative rates. The Swedish Riksbank raised its benchmark interest rate from slightly below zero to zero.

Other central banks may follow suit. There is little evidence that negative rates spur economic growth, but Sweden and other countries are finally seeing a slight uptick in inflation.

Other central banks, including the European Central Bank and the Bank of Japan, are still holding rates below zero. But that could change next year. If Europe and Japan are hiking rates while the U.S. Federal Reserve holds its benchmark rate steady, that would be dollar bearish.

If the Fed gets the rise in inflation it has repeatedly called for, that would be a huge potential catalyst for precious metals markets. The inflation trade has been quiet for several years, but we are seeing some signs of it picking back up late this year in commodity markets.

If inflation and interest rates instead hold steady where they’re at with the stock market continuing to advance, then we wouldn’t expect gold and silver markets to do much.

Perhaps the Trump rally has enough gas left in the tank to carry the president to re-election next November. President Trump seems to be enjoying an impeachment boost in the polls right now, but momentum will probably swing back and forth between him and his Democrat rivals multiple times in the months ahead.

The bullish dynamics for the stock market will eventually swing to the bearish side, whether before or after the election.

In the meantime, patient precious metals investors are still being rewarded with decent gains this year. And from a technical perspective, gold has quietly been in a bull market since bottoming four years ago around $1,050 an ounce.

Silver also put in a major bottom then, though its chart looks messier as it has lagged behind gold. Silver has yet to trade above its 2016 high at $21 per ounce.

However, the white metal is notorious for spiking higher rather than trending higher. When it is ready to spike again, it can be expected to deliver spectacular returns in a matter of weeks.

It’s certainly a good idea to be well positioned in silver before then. Investors will also need to be prepared to hang on for the ride. It won’t be a smooth one. But it will ultimately be rewarding when it’s silver’s time to shine and reach for new all-time highs at multiples of today’s prices.