Don’t Over-Think It Sometimes we just need to
step back and take in the big picture.
Dear John, Engineers will tell you that it’s best to apply the “KISS” principle to any project. And that means “keep it simple, stupid!” So as I was preparing this Golden Opportunities update, intent on explaining in great detail all the factors affecting the investment markets (and gold in particular), I came across a simple solution: I’ll just repeat the headlines. You see, I had been asked by a MarketWatch.com reporter for my views on the Fed’s latest non-decision, and had wandered onto their home page.
And I discovered that the headlines there perfectly summarized the current situation. To wit: “Fed holds steady on interest rates, wanting more than just rising confidence before hiking”
“Donald Trump seems fixated on punishing the U.S. dollar”
“Flynn says Iran is ‘on notice’ after missile launch”
“For some in the middle class, net worth slumps a staggering 43%”
“Gold prices edge up after Fed holds steady on rates”
“Chipotle and Trump: It’s all about the guacamole” OK, that last headline…maybe not so much.
But it is interesting the way a quick perusal of the headlines can capsulize just about everything you need to know. And in today’s fast-paced, short-attention-span world, it might be the best way to deliver an analysis.
But I’m guessing that you want a bit more. So allow me to expand…. “Trump Bump” Morphs
Into Bumpy Road Not long after Trump won the election — in fact, within seconds of the markets' opening — a new investor consensus emerged.
It held that Donald Trump was going to be a boon for the U.S. economy and the dollar. Both would be much stronger than before, as the new administration’s focus on reducing taxes, streamlining regulations and restricting trade would transform the economy.
You know what happened next. Through the end of the year, the U.S. stock market soared, the dollar strengthened…and gold fell.
Then, shortly after Christmas, gold began to perk up. Later, the Dow made a few unsuccessful assaults on the 20,000 level before finally clearing it late last week.
…And then the tables turned.
The stock market, which I’ve been warning was toppy, began to slide. The Dollar Index rolled over from its highs and dropped back toward the critical 100 level.
And gold took off.
The yellow metal eventually cleared the critical $1,200 level…then briefly dropped below it on Monday.
But gold quickly soared back over the $1,200 benchmark as investors began to understand more about what the Trump presidency will bring. It's up again strongly today.
As the headlines above indicate, Trump and his advisors are desperate to rejuvenate U.S. economic growth, particularly for the suffering middle class that elected him.
And they don’t intend to do it purely through free-market reforms. Far from it — they are mercantilists at heart, and are determined to use a weaker dollar as a shortcut to economic growth.
Moreover, the Fed is worried about what Trump will do. The record shows that they were terrified to raise rates before Trump was elected. Now there’s little chance they’ll act until, and if, they see the economy really taking off.
In short, we aren’t going to see a stronger dollar. And any hopes of a quick economic rebound are likely to be dashed.
That’s what gold is telling us right now.
But those aren’t the only factors that will help send gold higher…. Saber Rattling, Inflation And More… Iran, true to form, has decided to test the new U.S. president by sending a ballistic missile hurtling into the skies.
And Trump has quickly responded by putting Iran “on notice.”
Let me tell you, he’s not going to back down. The Iranians have given Trump a gift — a chance to showcase his machismo to the world — and you can bet he’s going to come up with a countermove.
Whether that’s economic sanctions or some sort of military action remains to be seen. Regardless, it will set the investment markets on edge and send gold higher.
Now, I don’t like to buy gold based on such fleeting geopolitical dust-ups. Long-term, secular bull markets in gold are based upon accelerations in fiat currency debasement.
Monetary issues drive gold bulls, pure and simple.
The good news for gold bugs is that is precisely what we’re starting to see. Inflationary pressures are rising not only in the U.S., but throughout the developed world economies.
By many measures, it’s already reached the Fed’s 2% target here in the U.S.
And while the Fed is forecasting three rate hikes this year, no one really believes them...and everyone knows they won’t raise rates more quickly than inflation grows.
So we’ll have negative real rates for years. The St. Louis Fed, in fact, is predicting negative real rates through the end of 2019!
This is incredibly bullish for gold. Combined with the Trump administration’s intent on keeping a weaker dollar and the growing geopolitical worries, it seems as if we’re at a real turning point for gold.
My advice: If you like gold (and you should), then you need to buy silver.
You see, in a classic gold bull market, silver always outperforms gold. We’ve recently seen the gold:silver ratio falling, which means 1) that this bull move is real, and 2) we should boost our potential profits by focusing on silver.
Gold is telling us that we need to buy silver, and we need to listen. And if you want to further turbocharge your potential, you should also buy high-quality silver stocks. All the best,
Brien Lundin
Publisher, Gold Newsletter
CEO, the New Orleans Investment Conference |
