Stagflation Is A Very Bullish Argument For Gold
There are certainly signals that are flashing that stagflation could rear its ugly head. The last time America went through stagflation it was extremely bullish for gold.
Powell has said that he doesn’t see stag or flation, but that obviously needs to be taken with a grain of salt because he also thought inflation was transitory. He relies on suspect government economic data to create economic models that aren’t very good at predicting the future. Often I think they would be better off focusing on what workers are saying about their job prospects to get a clearer picture of the real economy.
Mainly because the real economy and the one portrayed by their economic models and artificial government statistics seems to be far apart.
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Spotlight On A Sponsor
Welcome to the new section of the written reports where we will highlight sponsors and picks.
Amex Exploration announced an exceptional preliminary economic assessment (PEA) this morning on their Perron project in Quebec. Highlights from the base case using $2000 an ounce gold include an internal rate of return after tax of 40.2%. A modest capital cost (Capex) to bring it into production of $229 million. Rapid payback of Capex at 1.8 years. Plus, an all-in cost of production of $807 which is several hundred dollars below the average cost of production amongst gold miners.
Context is very important, the lay of the land for gold development projects is characterized by having a very tight supply which is what larger producers need to help them increase production, bring down costs and replace old mines with new mines. Which is a key factor as to why mergers and acquisition activity is picking up in the gold space and being done at healthy premiums. If there was an ample supply of gold development projects they wouldn’t be done at premiums and the M&A activity suggests that gold development projects are in high demand.
When looking at the projects in development with PEAs, the metrics at the Perron project, being in one of the top mining-friendly jurisdictions in the world, puts them in a unique position relative to their peers.
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Voters just elected Trump and the GOP in a clean sweep. When asked why, many said they weren’t happy with the economy. Certainly not the answers one would expect with the Fed pitching the Goldilocks economy narrative.
He was asked what the voters' message about the economy meant and he brushed it off quickly with a no comment response. This showed serious disdain for voters and how they feel about the economy. My initial thought was, wow, you really think your views on the economy are much more important than voters. That in itself is justifiable grounds to ask for his resignation.
When asked if he planned on resigning, he quickly responded with a curt no. When asked if Trump could ask for his resignation or fire him, he had equally short and dismissive answers. This suggests to me that he heard from the Trump team between the election and Fed meeting and he wasn’t too happy about what they talked about with him and other Fed members.
Whether he likes Trump or not, it shows a lot of hubris to think that he would flatly turn down the elected president if Trump doesn’t have confidence in his leadership. I get that the Fed wants to stay independent, but if the president has lost faith in his leadership he should at least say he would consider it thoroughly.
The bond vigilantes have been showing a lack of confidence in leadership and decisions since the Fed cut rates by a half-point at the September meeting. They have gone on a buyer’s strike and driven the yields on bonds up. Which basically says, if you want to go into a rate cutting cycle, you better plan on increasing your balance sheet because we don’t support your game plan and are worried that a new round of less than transitory inflation is coming.
Evidence of the potential for stagflation is crystal clear. Voters say the economy is in trouble and bond vigilantes say another wave of inflation is around the corner. I’m no esteemed economist but that duck is walking and quacking like a stagflation duck.
The last bout of stagflation was in the 1970s and that was very bullish for gold. Adding fuel to the fire of the gold bull story is that there is a Death Spiral of Debt, with the straw that will break the debt camel’s back being the cost of servicing the debt. Well, that and the reality that Trump already earned his stripes as a massive spender during his first term and is likely to do the same in his second term.
I can certainly see the argument for there having been uncomfortable conversations between the Trump team after the election and during the Fed meeting on interest rate policy over the two days between the election and the Fed cutting rates by a quarter-point at the November meeting.
The last things Trump wants to deal with when he takes his seat at the Resolute desk are a hard landing of the economy or stagflation.
Just because gold has been undergoing a shakeout since the election, doesn’t mean the gold bull market is over. Far from it. The bullish arguments for gold keep getting better and better, gold is a coiled spring just looking for an excuse to have an important breakout.
Stag meet flation,
Allan Barry Laboucan
Disclosure
Amex Exploration is a sponsor of Rocks And Stocks News, content creation about them is for the benefit of the company. Sponsors also benefit readers and viewers of the reports as it makes content creation possible for no charge to the Rocks And Stocks News audience.
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.
