What happened yesterday in the gold market was VERY bullish. After looking like it was topping out at its April and June highs, gold surged through them. While we were wary of it topping out here like a lot of traders, we definitely have a handle on the big picture which couldn’t be more positive, with the dollar set to crash as it heads towards loss of its reserve currency status, and a slowly dawning awareness among the hordes of fools holding paper denominated gold, that the only thing that matters is physical possession—if you own paper gold, you could find yourself well and truly out in the cold. You can wave your piece of paper in the air and demand delivery, only to be bluntly informed “Sorry, mate—none left—go ask the Chinese if they’ll let you have a little”.
The great news is that this nascent bull market in gold and silver, or more accurately second upleg of the larger bull market that started in about 2001 is set to dwarf the 2001—2011 upleg, and if you can’t own physical, forget ETFs and other paper rubbish—own shares of the companies that dig the stuff out of the ground—the large and mid-cap producers which are still selling at silly cheap prices, especially when you consider where gold and silver are headed. We started going for them a shade early a few months ago, and ended up looking temporarily stupid, but things are looking a lot better now and the key point to make here is that there is still everything to go for and there is a nice long list of them to choose from, and here’s another point—some of the biggest of these companies may seem lumpy and boring, but even these ones look destined to rise to many times their current prices during the mega-bull market that is about to start gaining traction.
Now we’ll quickly review some key charts. On gold’s 6-month chart we see how it broke strongly through resistance at its April and June highs today, that had threatened to turn it lower again.
On the 10-year chart for GDX, a proxy for gold stocks, we see that we are at a truly great entry point for gold and silver stocks, as GDX is just starting to rise up from near to the Right Shoulder low of its giant Head-and-Shoulders bottom pattern. GDX could rise surprisingly quickly towards its 2011 highs, especially if the dollar breaks down from its Broadening Top pattern, which is expected to trigger a dollar crash, and very possibly a stock market crash, since a crashing dollar will choke off the inflow of funds to the U.S., and this time, unlike 2008, gold and silver are unlikely to crash as they will be about the only game in town.
We are well aware that the dollar is oversold here with a high short position, but that won’t save it if breaks down from its Broadening Top, which would likely trigger a crash. Remember that we are headed towards a new paradigm where the dollar loses it reserve currency status, and the U.S. for the first time has to face the true consequences of its bankruptcy.
China and other Eastern powers, which have built up big quantities of physical, and can back their currencies with gold if they so choose, are going to ride the storm much better than frail, debt-wracked Western economies who have stupidly sold all or most of their gold. As a citizen of a Western country you don’t have to go down the gurgler like most of your compatriots whose investments will head rapidly in the direction of worthlessness, because you have the option to invest in the one sector that will outshine all the others in the coming financial mayhem—the Precious Metals sector.
The path ahead is clear—buy physical gold and silver that you can either have in your possession or securely stored. Failing that avoid ETFs, paper contracts and other IOUs and instead invest in the better mining stocks, starting with the large and mid-cap producers. U.S. investors should try to get some of their funds into mining stocks on the Canadian market, because the Canadian dollar should do well as the US dollar crashes, in part because Canada is more of a resource based economy. – Clive Maund
Earlier this month, we reported that gold has outperformed stocks so far this century. If we index both gold and the S&P 500 to 100 as of Dec. 31, 1999, gold has returned 86% more than the market.
Gold also looks good on a shorter timeline. Despite Dow Jones records that have kept all eyes focused on the meteoric rise of the the S&P 500, gold has actually outpaced stocks in 2017. Now the mainstream is starting to sit up and take notice.
A CNBC article Friday noted “gold is doing something unusual and quite bullish.”
With a 12.2% year-to-date rally for gold futures and a 9.3% year-to-date rise for the S&P 500, 2017 is set to be the first year in which the yellow metal has beaten stocks since 2011. In that year, gold advanced 10.2% while the S&P 500 finished flat.”
CNN also jumped on the gold bandwagon, reporting the yellow metal has outpaced the stock market in a battle between “fear and greed.”
Greed is obviously alive and well. Confidence in the American economy has lifted the S&P 500 to an impressive 9% jump this year. But gold, which is thought of as a safe place during times of fear, is doing even better. The precious metal has soared 12% this year to nearly $1,300 an ounce, putting it on track for the best performance since 2010.”
Axel Merck told CNN that investors feel pulled in two directions. Greed – they don’t want to miss out on the surging stock market. And fear – growing concern stocks are significantly overvalued. Even some of the world’s big bankers are worried. A recent CityA.M. article put it pretty bluntly.
Whichever your preferred metric, historical regression analysis suggests expected returns for equities, from today’s starting point, are very low.”
Meanwhile, another fear factor – geopolitical risk – continues to push gold higher. Tensions between the US and North Korea coupled with political uncertainty in Washington D.C. have a lot of people jittery.
“Trump’s twitter handle still stirs nervousness in the marketplace,” Lindsey Bell, investment strategist at CFRA Research, wrote in a report. He went on to say gold is a “smart and defensive way” for investors to diversify their portfolio “ahead of an increasingly uncertain near-term environment.”
We recently reported on four factors that could help sustain a gold bull run. Exante Data founder Jens Nordvig appeared on CNBC Futures Now last week to talk up gold. He pointed out three key macroeconomic factors he’s focused on that appear bullish for gold.
I would say it’s the low-yield environment, the trend of the dollar, and strong growth in emerging markets. Those three things together are some of the things that have underpinned the gold rally, and they’re still here.”
Nordvig focused particularly on the dropping dollar, noting its 9% plunge since the beginning of the year. He said he thinks “dollar retrenchment” will continue into 2018.
Along with the three macroeconomic factors, Nordvig also factored in geopolitical risk, particularly the political uncertainty in the US.
There’s the government shutdown risk and then there’s the debt ceiling risk. There’s been an elevated risk since Trump started to talk about it in more casual terms at his speech earlier this week. That’s definitely something that’s holding the market back, and it’s something that could potentially give a boost to gold while dragging the dollar down.”
We’ve been focusing on these factors for months. Now it seems that the mainstream is starting to catch on. – Peter Schiff
Another government shutdown could be coming down the pike if Congress doesn’t give in to President Trump’s demands for border wall funding.
But no matter how the situation plays out, it could be a unique win-win situation for gold and silver owners.
Here’s how gold and silver owners stand to benefit, whether Trump gets funding for his wall or not…
The Clock Is Ticking
Congress needs to pass a federal budget by September 30. If that doesn’t happen, a government shutdown is inevitable.
But Congress can’t do this alone. Any spending bill they devise will have to pass President Trump’s desk. However, he’s threatening to veto any bill that doesn’t include funding for the border wall he promised on the campaign trail.
Trump reiterated his commitment to the wall at his recent and highly publicized rally in Arizona:
If we have to close down our government, we’re building that wall… We’re going to have our wall. The American people voted for immigration control. We’re going to get that wall.
Trump’s threats come at a time when Congress is already struggling to reconcile a slew of tax cuts and spending requirements. To make matters worse, the president is losing support not just among Democrats, but among many members of his own party as well.
So with the chances of a shutdown appearing relatively high, what will happen to markets and metals prices when Congress and the president get stuck at an impasse?
How to Profit From a Shutdown
During the last government shutdown, economic output dropped by an estimated $24 billion, and markets took a notable hit. It’s logical to expect similar effects if we see another shutdown this September.
But there is a way to guard yourself from the financial turbulence of the next government shutdown.
Recent history demonstrates that physical precious metals perform superbly during government shutdowns. During our last shutdown in 2013, for example, gold prices spiked considerably. Similar trends can be seen in the historic data from several other government shutdowns since 1981.
That said, physical precious metals could be one of the smartest assets to hold if/when Trump decides to bring the government to another screeching halt.
But what if Trump succeeds in getting funding for his wall, and we avoid a shutdown? Then there’s actually another opportunity for metals owners to make huge gains…
No Shutdown? This Metal Will Surge Anyway
Here’s what makes this situation so unique: Even if there’s no shutdown and Trump does get his way, metals will still likely get a notable price bump… especially silver.
The reason why is simple. Trump is using an extensive solar power component to sell his border wall plans to opponents across the aisle.
And all those solar panels will require vast amounts of pure silver.
If you do the math on how much silver would be required for Trump’s proposed solar wall, a reasonable estimate reveals that the project would create a whopping 11 million ounces of new silver demand in the market. Meanwhile, silver supply and production around the world is steadily dropping.
Anyone who’s taken a basic economics class understands what this kind of situation means: Excessive demand in conjunction with dwindling supply could quite likely send silver prices soaring.
Trump’s Gift to Metal Owners
No matter what happens, Trump is giving a big gift to anybody holding precious metals. If he digs in his heels and forces a shutdown, there’s a good chance we’ll see a jump across the metals market. And if he gets his way and proceeds with his plan for a solar wall… it will give silver prices tremendous upward momentum.
Nobody knows exactly how the situation will play out. But one thing’s for sure… this is a unique buying opportunity for anyone savvy enough to spot in advance. – Peter Reagan
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