Gold Needs to "Glow Up" Part 2
Updated
Either way, adding at least "some" longs once we bottom here soon make sense whether we have seen the low or not. If we have, can always double up higher. If not, get to add balance of cash at a lower low. For sure everyone has thrown in the towel at that point, then Rocket
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Peter Schiff: "In a nutshell, to believe the gold bull run is over, you have to believe the Fed is done with stimulus. It seems pretty clear it’s not."Exactly. This reversal is designed to squeeze out ALL of the weak hands ahead of the massive rally to come. Remember that!
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US stimulus question continues to hang over the market – despite the stand-off over Trump’s plans to nominate a replacement for the Supreme Court in the last weeks before the election, Democrats are drawing up plans for a new $2.4 trillion stimulus – about a third smaller than their original plan passed by the House (but rejected by Republican majority in the Senate), and Trump’s Secretary of Treasury Mnuchin made positive comments on the prospects for negotiations – this was likely behind the sentiment improvement yesterday in US equities – but headlines on this will be key to watch in coming days and weeks.Note
Added just small amounts so far ~10% of targeted allocation.I'm already long physical and miners in a big way. Last Silver purchase was at $14. Only adding my final allocation for what's to come and at levels I believe we will never see again imho.
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Stocks and precious metals soared off the lows in March, thanks to Powell’s promise to do “Whatever It Takes” to support the economy and the markets following the widespread implementation of lockdowns to mitigate the spread of Covid-19. He delivered $3 trillion dollars in QE that almost doubled the size of the balance sheet in just three months. It did the job of boosting stocks back up to new highs while it stopped the bleeding in economic activity. Meanwhile the dollar dropped more than 10%. Gold and Silver soared to highs not seen in many years or ever.Note
However, at the July FOMC meeting he announced that he was cutting the purchases of U.S. Treasuries from $1 trillion a month to a run rate of approximately 250bln monthly, a 75% reduction. Then the following month, the 600/week emergency support provided to Americans, which was expected to be extended by many, expired. Republicans and Democrats remain deadlocked on the issue, and Americans are lining up for miles at food banks around the country.Despite the massive reduction in monetary and fiscal stimulus, The Fear-of-Missing-Out or ‘FOMO’ crowd kept the markets levitated for a while longer, but like a Wile E Coyote rocket, gravity soon took over when the rocket fuel of stimulus plummeted. At the same time, the dollar finally found a bottom and is now rallying.
In a nutshell, it is obvious that the primary driver of all markets right now is stimulus, also known as liquidity. Without it, the markets would crash like never seen before and the dollar would explode higher, at least in the short-term.
The Fed has tried to comfort traders and investors with words, but the market wants and needs action. By that I mean the Fed turning on the QE spigots again full blast, the U.S. Treasury dropping from helicopters its close to $2 trillion war chest, and/or Congress agreeing to extend or increase fiscal support to all Americans. Nothing else will suffice at this point, and despite temporary respites, the bias is clearly down in stocks and precious metals and higher in the dollar until one or all of these occur.
In fact, it is my belief that a sharp drop in stocks is exactly the excuse the authorities need to act. Let me make this crystal clear, I absolutely expect them all to act at some point, it’s only a question of when, not if. The alternative is immediate systemic collapse and depression. Does it depend on how far stocks have to fall, or will they wait until after the November elections in order to avoid political interference? My guess is both.
If stocks look like they’re crashing as they did in March or widespread social unrest breaks out, then they could be forced to act before the elections. However, my belief is that the Fed and certainly the Democrats will want to wait until after.
We have already had a significant drop in stocks and precious metals and a concurrent rally in the dollar to oversold and overbought levels respectively in the very short-term.
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There are three scenarios going forward that I see with varying levels of probability:1. Stocks and precious metals (“PMs”) are close to a bottom and will turn up imminently to new highs; the dollar is about to peak and fall to lower lows.
2. The same as #1, but instead of new highs and lows, we just see short-terms reversals then continue down to even lower lows in stocks and PMs and higher highs in the dollar. Then they resume the previous trends.
3. Stocks and PMs just keep dropping and the dollar explodes higher.
I consider #3 to be highly unlikely given my expectation for monetary and fiscal stimulus on steroids at some point. Scenario #1 is more likely if we get that stimulus soon (ahead of the elections), which was my original expectation. But the Democrats are playing hard ball and the Fed doesn’t want to be seen as handing the election to Trump, so scenario #2 is a very real possibility unless stocks crash ahead of November. This would mean a short-term bounce in stocks and PMs from oversold levels before falling again in the period just before and after the elections, which are likely to be the most hotly contested ever. Then some time in December, when the authorities can no longer wait or else risk a total collapse of the economy and markets, they act.
If scenario #2 plays out, stocks are going to fall further than many people expect and all of the weak hands will be washed out in precious metals and miners. This sets us up perfectly for new records highs in both. Meanwhile the DXY could reach my target of 97-98 and then dump, potentially to the 70s.
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Above I provide the worst-case scenario for Gold. This assumes the authorities act BEFORE the elections, i.e., scenario #1.The scenario #2, is that this correction lasts much longer than many people expected. Note that this is contingent on no action until well after the elections in November, as well as a deeper dive in stocks and precious metals and a bigger rally in the dollar.
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At the end of the day, this is just about different timing and routes but with the same destination: much, much higher. With this is mind, buying “some” precious metals or miners at the current levels may not be a bad idea whichever scenario wins out. That is up to you. Just remember that December has been very kind to Gold each and every year since 2013, i.e. when in bear and bull markets. I don’t expect this one to be any different, unless the Fed et al. jump the gun ahead of the elections. If and when they do act, regardless of the timing, stocks and precious metals will soar even more so than the rallies since March and the dollar will crash.Note
Stimulus: When, Not IfWe got the expected bounces from oversold levels in stocks and to a far lesser degree in precious metals and miners. At the same time, the dollar and real yields have drifted lower. That said, we still remain in a corrective phase for now.
Taking a step back from the day-to-day minutia and focusing on the big picture: Whether we go straight up from here, go down to a lower low now or in a few weeks, unless the Fed et al. are going to allow markets to crash and cause a systemic collapse and the worst depression ever—which I seriously doubt and would go completely against their latest reflation policy—then it’s vastly more probable that they will act sooner or later, worst case after the dust settles post the November elections, i.e., December.
With this in mind, you should be averaging in at these levels for what is to follow, imho. If what happened since the March madness and the stimulus that followed is anything to go by, and we get much more of it the next time around—which we will—one can only imagine how high metals and miners will go.
All that we are waiting for is either one or more of the following to occur:
1. A fiscal deal between the White House and Congress
2. An announcement by the U.S. Treasury to helicopter drop payments to almost every American
3. Fed turns on the monetary spigots again and their balance sheet explodes higher
Not words, but action. Again, it’s only a matter of when, not if. The alternative is the collapse of everything. The latest discussions confirm to me that some kind of deal is coming. The key question is when.
Knowing that there will be more fiscal stimulus at some point in the next three months—likely followed by more monetary stimulus to buy the resulting debt issuance—means that there is an asymmetric risk to the upside in Gold, Silver, and the miners and you should be buying ‘some’ now in advance of that, imho.
Elsewhere, I’m also seeing more evidence that my forecast for hyperstagflation starting to take off in 2021 will be realized. As my readers may remember, my forecast is based on supply shocks becoming more widespread across multiple sectors while demand is propped up by more fiscal and monetary stimulus. Mounting job losses are a sign that the former is happening as we wait on the latter.
We have already seen how this will play out in the meat and lumber industries, where prices have soared despite the ongoing economic recession. The supply shocks in those sectors are now spreading across the economy. Coupled with the pending fiscal and monetary stimulus, hyperstagflation is a high probability. Anyone that remembers what happened to Gold and Silver in the stagflationary 1970s knows what this means for precious metals and miners when stagflation-on-steroids kicks in.
In conclusion, while we wait for metals and miners to resolve one way or the other in the short-term, please keep in mind what is coming next once we get the long-awaited stimulus. New record highs in Gold and even bigger gains in Silver and the miners, imho.
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Just an FYI... I'll be adding to my physical metal and miner positions if and when we get lower lows than those on Sept 24. Not advice. DYOR.Note
Trump's comment that all stimulus negotiations were on hold until after the election, the moves that followed have almost all been erased and then some after he did a 180 inside 24 hours on 'some' stimulus. As I said "Fundamentals DO matter." But did we get more stimulus?Note
Said differently...We could hit lower lows in the paper price but the physical price has gone UP due to an explosion in premiums because of high demand and lower supply to the point where physical is relatively or actually unavailable.
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There is still the risk of one more leg down to lower lows but i'm already averaging in, especially in physical metals, because their price may not fall, especially if premiums start to widen further as supply dries up.Note
The debt was a mere $10.6 trillion when President Obama was inaugurated. It now weighs in over $27 trillion. But now, with all of these well-acronymed stimulus programs like the CARES Act, the debt is skyrocketing much faster than ever before.Note
1800, 1750, 1670? Doesn't matter to me. I'll know when I see it, and when that happens, the upside is massive. Don't need to catch the very bottom.
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