Gold Is Going Through A Correction In A Tremendously Powerful Gold Bull Market Creating Remarkable Opportunities In Gold Stocks

Gold has been in a stealth bull market throughout this year when looking at it from the perspective of investors in the West. It is much less stealthy in the East, when it comes to investors in China, India as well as from the central bankers in the BRICS organization.

Although most investors in the West are ignoring gold, the Chinese, Indians and BRICS central bankers are the ultimate buy and hold investors. They have collectively pulled a tremendous amount of physical gold off the market.

__________________________________________________________________________

Spotlight On Gold Stocks

This section of the written reports is for highlighting sponsors at Rocks And Stocks News and top picks. Today, I want to make some points on the gold stocks in general.

During the powerful run in gold, the gold stocks have been reluctant to join the party. But, during the recent correction in gold, the market for gold stocks has been very efficient at hammering the gold stocks.

This in itself is a very bullish argument that gold is in its very earliest days. In a real gold bull market, silver and copper would be very strong as well. The lack of strength in gold stocks, silver and silver stocks, copper and copper stocks, is telling us that we are in the very earliest innings of the gold bull market. 

If I was looking at the gold bull market as if it was a calendar, I would argue we are still in the first week of January.

Sadly, investors in mining stocks look at news and if the stock goes down it is bad and if it goes up then it is good news. Retail investors miss tremendous opportunities and sell when they should be buying because they watch the stock action for assessment of the news instead of looking at the entire news releases to determine if it is good or bad news.

I’ve been seeing this play out in several gold and silver stocks as gold has been correcting since the election. Gold is very oversold as are many gold stocks from the major miners to new mine developers and explorers with important discoveries.

This is making for wonderful buying opportunities for those that are confident that gold is oversold and ready to rally which will also help the dramatically oversold gold stocks.

In order to buy low and sell high, first you need to buy low.

____________________________________________________________________________

They have bought so much physical gold for two key reasons, one is the debt problem in America which many other countries followed to create a global debt crisis. Secondly, they want to have an alternative to the US Dollar (USD) as the world reserve currency.

For much too long the economies of the world, including the largest America, have been built on debt. During this multi-decade period, they have consistently devastated the purchasing power of fiat currencies.

In an ultimate form of economic hubris, past leaders of the Fed, including Greenspan and Bernanke have made the case that America could never default on the debt because they had the printing press for the world reserve currency. This theory seems to have permeated throughout the Fed, economists, market commentators and Wall Street. 

They all believe that American bonds are risk free. As long as this is a well held belief it can persist as it has for decades.

But, now the level of debt has gotten so big, and with interest rates where they are it is challenging these beliefs sustainability, rightfully so. The supply of debt is massive, and the cost of servicing the debt is consuming a rapidly growing portion of the tax income.

The Free Money Era after the 2008 GFC went on for much too long, which caused runaway inflation. Recently, the Fed declared victory over inflation, and started a rate cutting cycle, but the bond vigilantes are not buying it and yields are going up since the September rate cut.

If the Fed wants to keep cutting rates, they are going to have to expand their balance sheet. Which makes it pretty tough to sell their Goldilocks economy pitch if they need to go back into the QE business.

The debt situation and cost of servicing the debt are serious issues for the Fed. It seems that many believe Trump will cut spending, but I have my doubts and think based on his first term when he was a massive spender he will dramatically increase spending not slash it.

In addition to the debt problem and cost of servicing it, voters just said they aren’t happy with the economy and don’t feel the Goldilocks economy that Powell is talking about. Meanwhile, Powell is making the case that they have orchestrated a Goldilocks economy and Goldilocks rate policy.

In the real world, the voters say it isn’t a Goldilocks economy and the bond vigilantes are worried that another wave of inflation is just around the corner. This sounds a lot more like stagflation than a Goldilock scenario for the interest rate policy and the economy.

The last bout of stagflation in America was tremendously bullish for gold. But, since the election, gold has been under pressure. Very few market commentators are talking about stagflation and with gold going down doesn’t suggest investors see it as a possibility.

To avoid stagflation, the economy will have to get much stronger and inflation will have to drop. Those two events are not congruent because if the economy gets stronger then inflation will as well as it will likely require much lower interest rates.

Which is why I think this recent correction in gold won’t last for very long and will be followed by a powerful rally. I concede that $3k gold by the end of this year is off the table, but will happen in the early part of 2025.

Based on the drop in full-time jobs for several months, and workers needing to take on one or more part-time jobs, means that the jobs market is weak as is the economy. Which is exactly what voters said on election day.  

I’m sure Trump and his team heard this message loud and clear, which likely has made for tense communication between the Trump team and the Fed. The last thing Trump wants is to deal with a recession early in his second term. 

If I were part of the Trump team, I would be putting maximum pressure on the Fed to cut rates, not by a quarter-point like they did in their November meeting, but by a half-point and signaling more of those to come. Of course, I would also be recommending that the Trump team actually cuts spending, not just talk about it or create a silly department for government efficiency that has no teeth because ultimately the elected politicians have to get on side.

As always, there are multiple variables to consider when it comes to gold, but when I look at them, I see nothing has changed for the gold bull market, if anything, the story is getting stronger. This recent correction in gold looks to be a buy the dips in a bull market scenario.

Obviously, that takes conviction by gold bulls in the bullish arguments for gold, which has been tested since the election by traders in the paper market. My guess is that the physical buyers will take back control of the price of gold very soon.

Long live the gold bull market,

Allan Barry Laboucan