A Want
To Rise There’s been a significant character change in the gold market. Like a beach ball being held underwater, it wants to rise.
It was held under yesterday, but it’s popping back today. Dear John, In a career spanning four decades in the gold market, watching the price every day, I’ve learned a few things.
More importantly, I’ve developed a “feel” for gold. You can look at charts until your eyes water, but sometimes gold is simply telling you that it wants to rise.
It rises on good news when it should…any set-backs are quickly reversed…and sometimes it even rises on bad news. That’s what we’ve been seeing in gold.
Over the last two weeks, the metal has been rising relentlessly, with barely a pause in an ascent that took it from under $1,200 to above $1,240. It had already broken through its 50-day moving average in mid-January, but this latest surge took it decisively through the 100-day moving average at around $1,225.
It’s still above that level after its first significant set-back, a $13 drop yesterday.
But today, the metal has snapped back, trading up a few dollars into the green as yesterday’s fall — prompted by President Trump’s comments on a “big league” tax cut to be announced soon — doesn’t seem to have damaged sentiment for gold to any great degree.
In fact, the consensus is beginning to interpret any tax cut and associated economic growth as being bullish for gold.
Again, investors are interpreting most new developments as positive for the metal. That’s the hallmark of a gold bull market.
Now, conversely, a market that doesn’t rise on good news, and seems to look for any excuse to fall, is in a bear market.
That’s why we need to watch the “character” of this gold market very closely, in case of a shift in the other direction.
But for now, and for the weeks ahead, it seems like the winds are blowing in favor of gold. A Different Story,
With A Similar Ending In the days since the election, Donald Trump has continued to talk and tweet, while we’ve also begun to hear from his cabinet appointees.
And, since shortly after Christmas, gold and gold stocks have rebounded strongly. In fact — as I’m about to show you — they’ve traced out paths very similar to the beginning of last year’s rally at this time.
Whether that is in reaction to what we’re learning about President Trump’s plans isn’t entirely clear. Some of it is, no doubt, a natural rebound from over-sold levels in gold and an over-bought U.S. dollar.
But it’s also become clear that Trump and his appointees are not going to be fans of a strong dollar. Quite the opposite in fact. Far from the free-market capitalists that peppered his list of advisors, those actually in the seats of power appear to be mercantilists.
They will not be able to resist the siren song of currency depreciation as a short-cut to growth. I don’t know if they’ll be willing or able to push the dollar too low. But one thing’s for sure: They will do anything to keep it from strengthening. And this will be bullish for gold. If Hillary Clinton had been elected, the same easy-money, low-growth economic policies would have been in place. It would have been a simpler story, and a bullish one for gold. But adding everything up, it seems the story for gold under a Trump administration will be more complicated, but perhaps even more bullish for the yellow metal. I think the following factors — some related to Trump, others not — will be supportive of gold going forward: • Trump tweets — I don’t worry much about these and the various other potential controversies that Trump might spark. But perception is reality…and the fact remains that if enough people around the world are worried about him and buying gold because of it, then it’s a thing.
• Gold bugs? — While his appointees seem to be mainstream mercantilists, a number of Trump’s economic advisors have favorable views toward gold. They seem to understand its role as a safeguard against dollar depreciation. If Trump can be convinced to reform the tax treatment of gold (and I’ll be working to do just that), then we could see a boom in gold demand.
• Stimulus spending — There have been calls from Trump and his camp for as much as $1 trillion in stimulus spending. Granted, they’re talking about spreading it over a decade and accomplishing it through some sort of a public-private infrastructure bank. But still, such spending (wasteful as it is) will help foster metals demand and price inflation.
• Economic growth — If you had come up with a plan eight years ago to throttle the U.S. economy, it wouldn’t have been much different than that followed by the Obama administration. Trump, simply by virtue of being not Obama, will help unleash the dynamic natural growth tendency of the U.S. economy.
But much of what he’s planning, especially tax reform, should significantly boost economic growth. This means the inflationary price pressures we’re just beginning to see will grow.
• Increased deficit spending — Trump’s calls for cutting regulations are not repeated with equal fervor when he talks about cutting spending. In fact, I think Trump’s plans to boost defense, build a wall and expand entitlements will make him one of the biggest spenders we’ve seen recently.
This will force the Fed to keep rates at historically low levels…until they lose complete control. Both will be bullish for gold.
• Sector rotation from stocks into gold — It may be hard to imagine with the Dow finally breaking through 20,000 and going even higher, but the stock bull market is very long in the tooth and greatly over-extended.
As our friend and noted market analyst Peter Boockvar noted this morning:
“As for the impact [of projected tax cuts] on earnings estimates, the all in impact (which includes a BAT) is an increase in earnings of between 5%-10% from what I’ve seen. The S&P 500 is up 8% since November 8th so it can be argued that we’ve about priced in the ‘big league’ tax reform.”
Given how over-bought the stock market is today, a correction is inevitable. Whatever factor precipitates the fall in stocks, you can bet that it will also send investors rushing to the safety of gold.
• Negative real rates — Over the long term, the gold price trades inversely to the real Fed funds rate (the rate adjusted for inflation).
Lower real rates mean higher gold prices, and this will be the primary fuel for gold’s next big run. The fact is, the Federal Reserve has already made clear that they’re OK with overshooting on inflation while maintaining a very gradual rate of ascent on rates.
Considering that inflation is already at their 2% target and rising, this effectively translates into negative real interest rates for the foreseeable future.
And consider this: The St. Louis Fed recently put out a position paper predicting negative real rates lower than -1.0% through the end of 2019. Not only that, the paper argues for the continuation of negative real rates as standard Fed policy.
Low and negative real rates are so positive for gold that the effect of such a policy would effectively be a permanent bull market for the metal.
Add it all together and it seems that 2017 could be a decent year for gold, silver and gold stock investors. Perhaps a more circuitous route than we would have followed under a Clinton administration, but one ending up in the same place. Get Positioned
For Profits The junior resource stocks we’re recommending in Gold Newsletter are soaring right now — spinning out the kinds of profits that this market is famous for in a bull run…the kind we’ve waited years for.
There are two very hot new plays that I just recommended in my last Gold Newsletter Alert, and which I’ll cover in our March issue of Gold Newsletter itself.
If you want to get aboard, you need to subscribe at some level right now.
CLICK HERE to do so immediately.
In other developments, I have a great news to announce: We’ve just confirmed Dr. Charles Krauthammer for the 2017 New Orleans Investment Conference.
We’re just beginning to build our roster of scintillating speakers for this year’s event, but we started at the top — with the inimitable Charles Krauthammer.
As you may know, Charles doesn’t speak to too many groups in person. But he comes to New Orleans every year because he loves our audience.
The enthusiasm, interest and intelligence of our attendees gives him incredible energy, and it shows in his presentations.
Very few people get to experience Charles’ insights in person, and they come away enlightened and inspired.
You can be in that number this year. But to get the lowest price, and guarantee your place in our host hotel (which sold out last year!), you need to register right now. CLICK HERE
To Register For
New Orleans 2017
The bottom line: Gold, silver and junior mining stocks are embarking on another run that is strikingly similar to last year.
That means we could see these juniors soar four, five or more times in value in the weeks ahead.
And there are reasons to believe they could do much better.
So make sure you’re along for the ride. All the best,
Brien Lundin
Editor, Gold Newsletter
CEO, the New Orleans Investment Conference |
