Gold Is Heading Higher And Gold Stocks Are Ready To Go Through The Roof
Summer 2024 had some exciting events for gold, gold stocks and copper stocks, September is shaping up for a lot of market moving news.
Gold is in a powerful bull market making a series of higher highs and higher lows, with each new high setting a record high. The Fed has declared victory over inflation and is preparing for a rate cutting cycle to get underway at their September meeting.
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As gold is ripping, the US dollar (USD) is dropping as it is anticipating a slowdown in the jobs market and the economy that will cause the Fed to cut rates and move back toward the Free Money Era. While folks in the Biden administration and the Fed are promoting that the jobs market and economy are strong, serious cracks are developing.
Many are talking about a no-landing or a soft landing for the economy, signs of a hard landing are developing. If you want to know where the economy is going, the jobs market is the best indicator. The BLS came clean that they were cooking the books to show that the employment numbers were a lot better than they actually were.
Revisions to the employment numbers pretty much wiped out all the job gains over the past year. Which is completely contrary to what the Biden administration and the Fed were saying was a strong jobs market. Things have been getting even worse over the past few months while workers are losing full-time jobs to take on part-time jobs to make less money. The largest segment of the revisions were in white-collar jobs.
Things are a lot worse than they have been trying to fool people with when it comes to jobs. Workers are very stretched which can be seen in struggles causing them to use their savings and dip into their retirement funds, plus cranking up their credit card spending while paying loan shark interest rates.
The Fed can look back at highly manipulated economic statistics to paint a picture that they are doing a good job on one of their dual mandates. Consumers have a whole different story to tell as they don’t get to buy stuff based on economic stats, they have to pay for things at the cash register with stretched debt and facing inflated prices. Cooling inflation doesn’t mean prices are going down. Their paychecks are not buying nearly what they used to even a couple years ago.
During the past year, the Fed has been playing the smoke and mirrors game that the jobs market was strong as was the economy, but it is all a farce. Just ask the average worker out there what the reality is. They will tell the “esteemed economists” at the Fed that they are in a whole lot of trouble. If workers are in trouble, so is the economy. A hard landing is much more probable than a soft landing.
Chairman Powell wanted his legacy to be that he fought off inflation, ignoring that he caused it, and that he was able to steer the economy into a soft landing with his interest rate policies. Paul Volcker he is not.
Instead, his legacy will be that he caused “transitory” inflation due to the prolonged Free Money Era, then jacked up interest rates in an aggressive way to fight the inflation, thus throwing workers and the economy under the bus. They will have to cut rates back toward the Free Money Era to try to fix being behind the curve once again. With the final humiliation being that he gets fired by Donald Trump.
Speaking of Paul Volcker, when he had to fight inflation, the national debt was around $1 trillion, now it is at $35 trillion and growing rapidly from insane spending by politicians. If Trump wins, Powell will get fired and then he will try to save his legacy by throwing the politicians under the bus. Which may give him a headline excuse, but the devil in the details is he helped them with the Free Money Era.
I’m no fan of politicians on the left or the right because they are indiscriminate spenders that think they have an unlimited credit card that can be paid off with the money printing press of the world reserve currency. Foolishly, they are pushing that to the breaking point and risking a default on the debt.
Past Fed heads foolishly said with their outside voices that the US could never default on the debt because they have the printing press. They certainly shouldn’t have said that because economists and politicians actually believed them.
Now the debt to GDP ratio in America is that of a third world country, certainly not what it should be for the biggest economy in the world. Made worse by the two candidates for president having already earned their stripes as drunken sailor spenders. Even more frightening is that the costs of servicing the debt will consume the majority of the income from taxes.
Politics is such a sad state of affairs that I’m forced to back Trump because although he is a massive spender, his opponent wants to put in capital gains taxes and unrealized gains taxes that are economic suicide. Of the two massive spenders, only one wants to commit economic suicide.
That these economically crushing policies are her leading economic plans is scary. It brings up the question of what else does VP Harris have lurking?
I have named the debt crisis a Death Spiral of Debt because that is exactly what it is. The next president will spend like crazy and also be faced with unprecedented costs to service the ever growing debt.
There are only two solutions, one is to default on the debt or back the debt monster up by returning to the Gold Standard. Some argue that default has to happen because in addition to the Death Spiral of Debt, there are unfunded liabilities that have to be reneged on. Proponents of this idea say how can you give people that rely on the unfunded programs a haircut without doing the same to the debt holders. It is a valid argument.
The Fed policies and insane spending by politicians have made America virtually insolvent. This is an inevitable conclusion that every economic superpower of the past has succumbed to because they feed on themselves running things with maximum hubris at the end of their reign of power.
I doubt that America will default on the debt, which will force them to cut spending that can only happen by returning to the Gold Standard. Default is certainly not out of the question, but the ramifications are severe. It will mean that the USD turns into a basket case, the economy seizes up and they have to start out from scratch. Which means they have to return to the Gold Standard.
I’ve said in the past that we are in a heads gold wins, tails gold wins situation. Whichever way the coin lands, there will be a return to the Gold Standard.
Another problem that is rearing its ugly head is who is going to buy the ample supply of US debt. The countries in the BRICS nations are selling their US debt and on a buyer’s strike.
When the Fed started their rate hiking cycle, they also said they would normalize their balance sheet. During the Free Money Era, they grew it to $9 trillion, then their efforts to normalize was an abject failure because they weren’t even able to reduce it to $7 trillion when they threw in the towel.
Now they have a new normal that is at an extreme base and a recession is looming, while big buyers of US debt are sellers of their debt holdings and on a buyer’s strike. Not only do I think the Fed is going to cut rates and move back toward the Free Money Era, they are going to have to resume their role as the buyer of last resort of US debt.
The pummeling of the USD has already started. It can be seen in the lower lows and lower highs in the USD index chart that is in a steep decline before the Fed starts their rate cutting cycle.
While gold is making higher highs and higher lows in a steep increase to a series of new record highs. The trends in the USD and gold are very friendly for gold and are not the kind of tapes that investors will be rewarded for fighting. Don’t fight the tape is a long held axiom in investing for a reason, because fighting it leads to despair and being on the right side of it grows wealth.
It doesn’t matter that gold and gold stocks have been maligned on Wall Street. The Death Spiral of Debt is here to stay and each day that passes moves us one step closer to a return to the Gold Standard.
While the BRICS nations are selling their US debt and reducing their reserves of fiat currencies, gold has become the second largest foreign reserve currency precisely because it is the soundest form of money.
The BRICS nations are winning the race to return to the Gold Standard and as they do that they are consuming a great deal of physical gold. They are holding onto it which will drive gold much higher because the supply of physical gold is very tight and getting tighter.
I’m pleased to report that in addition the people of China and India are holding onto remarkable amounts of physical gold, and people in the West are joining the gold bull market. As soon as retailers like Costco can get supply of physical gold, it sells out even while they throttle their customers to only being able to buy a couple ounces per customer.
For a long time during the gold bull market, ETFs were seeing outflows, of late the funds are flowing back in. Now, in addition to the central bankers in the BRICS nations putting themselves on the Gold Standard, as are the people of China and India, Western people are as well.
This makes me happy because the more people and central bankers return to the Gold Standard, they are protecting their wealth and fighting devastating destruction of their purchasing power from holding fiat currencies.
For much too long, the world has been built on debt and fiat currencies that are constantly devastating purchasing power. The sooner investors realize this and move toward the Gold Standard, the better off they will be and the same can be said for the world economy.
Every day that the Death Spiral of Debt keeps growing, the more confident that I become about my call that gold will see $20k within 10 years.
The Bitcoin promoters think that it will play an important role as a currency of the future. I think it is nothing more than a Ponzi scheme that proponents of it think a Ponzi scheme of fiat currencies and debt can be replaced by another Ponzi scheme. It can’t and won’t.
Bitcoin has already got its pump up from the ETFs being listed. It has topped and looks headed toward a period of lower highs and lower lows that will get much steeper and take it down to levels that current Bitcoin bulls don’t see as possible.
I would remind them that the central bankers of the BRICS nations aren’t buying Bitcoin, they are buying gold. The people of China and India are not buying Bitcoin, they are buying gold. People in the West own way too much Bitcoin, but some are starting to see the golden light and are buying gold.
Trying to replace Ponzi schemes with another Ponzi scheme is a horrible plan and will lead to severe problems. On the other hand, replacing Ponzi schemes with gold, the soundest money, is the only viable solution. Gold has been the soundest form of money basically forever and will regain its position as the world returns to the Gold Standard. Bitcoin bulls can try to pass it off as digital gold, but it is nothing more than a Ponzi scheme.
With gold in a powerful bull market making a series of new record highs, it is juicing up the bottom lines of gold miners.
Some of them are making records in free cash flow, with the best in breed also increasing production and bringing down costs to produce gold. Until February of this year, the gold miners were reluctant to join the gold bull market. But, then it changed as they saw exceptional performance since.
That is because astute investors saw that the strength in gold during the second quarter and beyond would do wonders for free cash flow generation by gold miners. The second quarter of 2024 saw the highest average price of gold ever. While gold miners have production costs close to $1000 per ounce lower than the cost to mine an ounce of gold. So, with the record prices of gold, is driving free cash flow through the roof for the gold miners.
During the third quarter it looks like gold miners are holding costs down, and the third quarter is on a path to set a new quarterly record for the average price of gold. When the Fed goes into a rate cutting cycle starting in September, it will put more pressure on the USD and drive it lower while putting more wind behind the sails of gold and the gold miners.
The third and fourth quarter of 2024 are primed to see new records for the average price of gold. Gold mining is one of the only industries that are seeing impressive growth in free cash flow that is getting better and better.
Smart money is already moving into gold and gold stocks. They have started with the well known names that generalist investors recognize. It has started to flow down to high-quality developers and explorers with impressive gold discoveries.
Mergers and acquisitions have started with Gold Fields taking a run at Osisko. This will likely prove to be a catalyst for more M&A activity.
The reason that M&A activity will pick up is because the major gold miners are for the most part struggling to increase production and replace their old mines with new mines. They are well aware of the powerful bull market in gold and it won’t be long before their biggest shareholders will demand growth.
Their old mines can’t increase production so they will have to open up their checkbooks to buy production growth. The problem with that strategy is that the menu of smaller miners and development projects is very small.
They will have to pay up by cutting bigger checks for smaller miners and developers. In addition, very few are seeing the writing on the wall that they will have to also become the partner of choice for developers and explorers. How they will accomplish this is by making strategic investments into developers and explorers with high-quality projects.
This also has limits because the menu for these kinds of projects is also very small. The culprit for the supply chain of developers and explorers with projects big enough to move the needle for majors is because there has been a chronic under investment for exploration that has led to important discoveries.
If you think this all means that I see a gold bull market that will drive high-quality gold stocks, from the best in breed miners to explorers much higher, you are absolutely correct. Even gold bulls don’t have a good grasp of how high this could drive the gold stocks. Or the ones down the gold stock food chain would have much higher valuations.
The gold stock bull is in the starting gate pounding his hooves. The starting gate has only opened for the big gold stocks, they are only coming off the canvas from a prolonged bear market while gold has been in a tremendous bull market.
The last time I saw this was during the 2001 to 2011 gold bull market which was a magical time for gold stock investors that beat the crowd to the punch. So far, only the smart money is ahead of the crowd, next the crowd will come and when they do, the gold stocks are depressed and they will find a small menu of choices in gold miners, gold mine developers and gold explorers with exceptional discoveries.
Let the gold stock bull games begin.
In Closing
News is what markets and I see plenty of news coming that is bullish for gold and gold stocks.
The big one for gold in September is the Fed starting their rate cutting cycle. Throughout the remainder of 2024, rate cuts will put added pressure on the USD to drive it lower and gold higher. I’m looking for gold to reach $3k before the end of 2024 or early in 2025 at the latest.
In October, the BRICS nations will have their annual meeting, with plenty of countries lining up to join. There will likely be new additions to team BRICS. Plus, they could announce some fireworks for gold. I suspect that this could be that they are continuing to rapidly increase their strategic reserves of gold and likely that they will want to use it more significantly for international trade.
The news for gold miners will be a continuation of records in free cash flow, plus efforts to increase their production and bring down their costs of producing gold. M&A activity could get very exciting and I think we will see more efforts from gold miners to make strategic investments in the developers and explorers to try to become the partner of choice.
A wild card for gold miners is that some could stop being in a rush to sell all their gold production for fiat currencies and instead start sitting on gold. This would make gold stock investors jump for joy. Plus, it would take more physical gold off the market and drive gold even higher, resulting in even better performance with their free cash flow. Once one major miner jumps on this bandwagon, more will follow to create a virtuous cycle.
If this were to happen, I will have to revise my $3k gold prediction to happen well before the end of the year and move us into the next key milestone of $3k to $5k gold. Which would put us ahead of schedule on my prediction for $20k within 10 years.
For the gold mine developers, I will be watching for news that they are moving well through the development stages toward production. I don’t see nearly enough gold mine developers and as a group they haven’t entered the gold bull market.
Best in breed gold explorers with important discoveries should see improved valuations as they announce drilling results. Another driver is when bigger companies start making strategic investments to help them with proper financing and technical advice as well.
All the best,
Allan Barry Laboucan
Disclosure
Rocks And Stocks News does not make buying or selling recommendations. The reports are for information purposes only. Sponsors pay a fee to Rocks And Stocks News for content creation. The business model of Rocks And Stocks News is to fund research and reporting on the sector, picks and sponsors through corporate sponsorship. We are thankful to sponsors for enabling commentary free of charge to readers and viewers of the reports. When reporting on sponsors it is on behalf of the sponsors discussed in the portion of the report mentioning the sponsor. Before making any investment decision it is important for you to speak with your financial advisors to consider your risk profile. It is also important to do your homework. To help in that process, Rocks And Stocks News means to be a gateway by doing reports and interviews of management of sponsors and picks. The reports and interviews should not be considered investment advice. Allan Barry Laboucan is the founder and owner of Rocks And Stocks News, he has worked in the mining sector since 1993 and has been reporting on the sector since 2005. He has worked with and been mentored by very talented geoscientists in geology, geochemistry and geophysics. He uses the skills he has picked up during his career to assess sponsors and picks in the reports. Whether a company is a pick or a sponsor they go through the same filter and are reported on when important news is made that Allan Barry Laboucan wants to discuss on the Rocks And Stocks News platform. He may own shares in sponsors and picks for investment purposes which he discloses when discussing them in the reports.
