The Traffic Lights Are Bright Green For Gold And Gold Stocks
Since gold went on a powerful run starting in late February, it had its first significant pullback today. This is a normal move in a bull market, and we are very much in the midst of a gold bull market.
In fact, as I’ve said on many occasions, the pullbacks tell us as much about the health of a bull market as the rallies. What happens in a bull market is the rallies are strong and last long, while the pullbacks are mild and are over quickly.
Prior to the powerful run, I had written a couple reports that gold was a coiled spring ready to go over $2100 and see a series of new record highs throughout 2024. Nothing has changed with the second part of that speculation.
During the run to over $2400, I was seeing action on a daily basis that is indicative of the health of the gold bull market. It would see mild pullbacks that were over quickly while the rallies were strong and lasted longer. These daily trends are much like what I expect to see happen over the year.
Whenever I see a pullback on gold I always look at the reasons for being bullish and ask if anything has changed.
The Death Spiral of Debt is ongoing that was built on the Free Money Era after the 2008 GFC. Trillions of dollars of debt has to be rolled over from the Free Money Era to much higher interest rates, making the debt crisis worse.
Servicing the debt is rising dramatically, it doesn't seem to cause a lot of concern amongst “economists” as it has gone over $1 trillion which is higher than military spending, and well on its way to $2 trillion. In the next few years, servicing the debt will be the largest government expense.
Politicians have not slowed down on spending, none of the candidates are even talking about the need to cut spending. The rapid rise in interest rates after the Free Money Era and the politicians spending has locked in the Death Spiral of Debt.
The BRICS nations putting themselves on the Gold Standard hasn’t stopped. Neither has the buying from consumers in India and China. Even American consumers are joining the gold party by buying as much as Costco will sell to them.
Then you have weak supply while gold is at record highs. Barrick just announced their production is down and costs are up. The gold miners just aren’t able to react to higher gold prices due to years of neglect in exploration and new mine development.
Another trend I have seen of late is that the gold bears have lost control of the price of gold using the paper market. It is more about physical supply and demand. But, I am also seeing gold bulls are starting to use the paper market to drive the price higher.
Add all of this up and it equals nothing has changed concerning the reasons to be bullish on gold.
The gold stocks have improved, but that is from dismal valuations. It won’t be long before gold investors also turn into gold stock investors.
The strange thing about investors in stocks, they prefer to buy when things are more expensive. I have no doubt that more expensive prices for gold stocks are right in front of us. Those lights are not another train coming to run gold stock investors over. They are the lights of opportunity for golden contrarians.
All the best,
Allan Barry Laboucan
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