Gold surged higher on Friday. Then it gave all the gains back yesterday. Looking beyond this short-term noise, gold is not an exciting market right now. What could make that change?

Gold is trading in a rough sideways trend with an upside bias. This bias continues to strengthen, albeit very slowly. The technical action reflects the fundamentals and liquidity flows and clearly, patience.

I jokingly refer to the SPDR fund as “Spider-Man”. Chindian demand is decent, but Spider-Man looks like he’s caught in his own web; while there’s no significant selling, buying has come to a standstill.

If Chindian demand is solid, gold doesn’t really need a lot of Western fear trade buying to move higher, but it must have some. That’s just not happening right now.  

The winds of change may be in the air, with US wage inflation pressures intensifying, an approaching debt ceiling debate, and a new Fed chair who stands ready to significantly reduce bank regulation. 

Without a bull cycle in money velocity, gold stocks and silver stocks will have a very hard time outperforming bullion on a consistent basis. 

The good news: these winds of change (especially the small bank deregulation favored by Fed chair Powell) mean there is a very high probability that US money velocity ends its two-decade bear market in 2018. 

Like Reagan, Trump’s administration is decreasing regulation and taxes while increasing debt. The main difference is that Reagan operated at the start of a business upcycle and at the end of an inflationary era. So, the Reagan administration could deflect government debt growth concerns with positive economic growth accolades. 

In contrast, the Trump administration is operating in the tail end of the business up cycle and in the tail end of a deflationary era. The bottom line: US GDP can grow for another year or two and hit 4% to 6% on the upside, but liquidity is going to flow from Wall Street and government bonds into the fractional reserve banking system as that happens.