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Deflation Fear Factor: The Ultimate Bottoming Sign?
Pinnacle Digest writes: Roy-Byrne makes a case that periods of deflationary fears, or a spike in public searches of deflation on Google, are followed by a rise in precious metal equities. Whenever searches for the word deflation rise, gold and precious metals are nearing a bottom or oversold state.
Roy-Byrne explains that in cyclical terms, the precious metal sector is counter-cyclical. It naturally underperforms when conventional sectors and the economy perform well. In our current economy, economic growth is inflationary. This makes it difficult to gauge as it does provide momentum in the markets, but impedes the bottom line of many companies as they fight rising costs.
It is the fear of deflation and recession that prompts inflationary policies, which are bullish first and foremost for the precious metal sector. We have been seeing this in the market as recently as today.
Roy-Byrne concludes that, "although extremely oversold and forming a major bottom in a long-term sense, the precious metals sector is waiting for a catalyst to springboard its next cyclical bull market." He argues that it will be due to one of the world's more prominent central banks, either the BOJ, ECB or the Fed who triggers the next major move in gold.