Gold Is In A Powerful Bull Market While Gold Stocks Lack Bullish Conviction
Even many gold bulls don’t get how powerful the bull market is for gold. Soon after the recent rally in gold, I saw a bunch of market commentators that consider themselves gold bulls warning of a correction.
Trying to get too cute inside of a bull market will often leave one with egg on their face when they try to predict short-term corrections. A much better strategy is to look at dips as short-term buying opportunities. What gets in the way for investors pulling the trigger during the dips is they think they can time it perfectly. The odds are stacked against them and they are much more likely to miss the buying opportunity and watch it pass them by.
The only way I would get short-term bearish on gold is if I saw euphoria jump so high even the mainstream media was pumping it up. If one wants to see how far we are away from a euphoric sentiment, just look at the gold stocks. Even the big miners that are making money hand over fist aren’t trading with much excitement.
Sure they came off the canvas around the middle of February this year, and have improved significantly since then, they still have a long way to go just to catch up to the current price of gold. They aren’t even close to starting to price in much higher gold prices.
Looking down the food chain at the gold mine developers and explorers with important discoveries, most are still not even really getting off the canvas. They are trading as if gold could crash at any moment.
There is very little bullish conviction in the gold stocks. If the gold bulls aren’t able to muster up a tiny bit of courage on the gold stocks, there are zero reasons to be trying to time short-term pullbacks for investors or market commentators.
Another place to look for bullish enthusiasm is in silver, when gold is in a euphoric phase, silver will be as well and will be outperforming gold. While gold is near its record price, silver has to make a big move just to reach its record price.
Gold stocks and silver are important to follow as indicators of euphoric action in gold. Gold stocks and silver could double from here and they would just be catching up to the current bullish action in gold.
Some will accuse me of being a permabull on gold, they are right and I wear it as a badge of honour. What I don’t think many gold bulls or generalists understand is that the global economy is going through a big transition that will last a decade or two to play out.
Due to the world dropping out of the Gold Standard in the 1970s, the politicians went on a spending spree that created the Death Spiral of Debt. This was led by America and practically every country followed suit. Now the costs of servicing the debt and the lack of visionary politicians that realize they need to get their spending under control, means the Death Spiral of Debt is on cruise control.
This process took 50 years to get to where the world is in a debt crisis and we are seeing constant devastation to the purchasing power of every fiat currency. It could take 50 years to fix it, if it is even fixable without defaulting on the debt.
Going back to the Gold Standard like several central bankers are doing is the smartest move, they will be the ones that come out economically healthier. Especially if they start slowing down their spending.
So far, it is only the central bankers in the BRICS nations that see the writing on the wall. Their counterparties in the West think they can keep the debt Ponzi scheme going. They might be able to kick the can down the road for a few more years, but due to the costs of servicing the debt, the road is getting shorter by the day.
The only thing that the central bankers and politicians in the West are good at is wild spending and destroying the purchasing power of their fiat currencies. No matter whether Trump or Harris wins the US election, they will be massive spenders.
Obama was the worst two term spender, Trump came along and tried to outspend him in one term and got really close. Biden-Harris will probably beat Trump. It is like these politicians think the insane spending of those before them is a challenge to surpass, not something to avoid.
I see zero chance of Trump or Harris slowing down spending, actually, I think they will ramp it up to deliver $3 trillion plus deficits during the four years of the next president’s term.
It was somewhat easier to kick the can down the road during the Free Money Era. But, that caused inflation to get out of control, way past transitory. Then the Fed jacked up interest rates relentlessly and caused another issue. It caused a huge problem with the costs of servicing the debt.
Now, the costs of servicing the debt has surpassed military spending, while two hot wars are taking place, and has Medicare and Social Security in its crosshairs. There are only two ways to slow the growth in the cost of servicing the debt, slow down spending or drop interest rates back toward the Free Money Era.
The chances of Trump or Harris cutting spending is zero. So the Fed will have to bail them out by cutting rates.
Rate cutting has its limits as the US is an importer and slashing rates will punish the US dollar which means inflation will kick in quickly. The Fed can declare victory over inflation and say that the jobs market and economy are in a Goldilocks situation, but they aren’t. Any more than inflation was transitory.
Interest rate policy and what it does to the US dollar is only a short-term mover of gold. The big mover, that few seem to understand, even gold bulls, is that what is really moving gold is the Death Spiral of Debt.
It took 50 years to get here, it will take decades to fix the problem and I don’t see any politicians that even recognize the problem, let alone want to fix it.
Each day the Death Spiral of Debt gets worse, and I get more confident in my prediction that gold will see $20k within 10 years.
All the best,
Allan Barry Laboucan
