DGP

We are in a historic political, economic and social moment.A second lockdown could be more devastating than the first, with longer-term implications.The Fed has spent trillions of dollars in stimulus, which means that inflation is likely to occur, if not hyperinflation.

Within the various commodity sectors there are certain products that have outperformed others as the market recovered.Outperformance within groups is one of the keys to understanding the nature of commodity prices in relation to economic forecasts.Especially in the wake of changing central bank policy.

Food inflation in the United States has averaged 4% since April, similar to the beginning of the stagflation of the 1970s.Agriculture prices bottomed out as food inflation peaked in June. Now wheat, soybeans and corn prices are on the rise, which means food inflation is about to worsen.This is not due to supply shortages, as producers are short a record number of corn and soybean contracts. Plus, in gold terms, these commodities are at record lows.What is happening is that dollar positions are being exited internationally and countries are hoarding food commodities instead. Soybeans are locked in backwardation despite the harvest already being completed.This could worsen considerably once the next bailout bill passes, as dollar positions get liquidated around the world.

There's uncertainty about the US presidential election next week, doubts about any possible US stimulus package, tensions with China, and increasing COVID-19 cases with unemployment rates high and businesses closing.Gold and silver are bullish in the mid to long term.Europe is locking down again, which will further harm their economies.Whoever wins the US election next week is going to face the economic necessity of a larger stimulus package, which will further pump up stocks, while also being bullish for gold and silver as fears of inflation will increase.

Gold has been suppressed by a rally in 10-year Treasury yields.The dollar is still in the driver's seat for gold, however.I expect the dollar to weaken once the next U.S. stimulus is announced.A falling dollar will strengthen gold's price, pushing it above $2,100.

The election cycle and exploding Fed balance sheet will help push gold up.On a number of metrics, gold remains cheap.In the very near term, gold will be pressured until catalysts emerge.  But then it promises to head much, much higher.

In the long run, the constant rise in liquidity injected by central banks to assist the restrictive economies will support assets with limited supply, such as gold and silver.However, the rise in uncertainty over the US elections and new rounds of lockdowns to fight the pandemic will increase demand for safe assets such as the USD.A stronger USD may weigh on both gold and silver in the short run, which have already started to show some signs of fatigue.

An AI fund which has almost doubled the performance of the S&P 500 Index this year isn’t buying into bets on a rebound in cyclical stocks.