The USD Is Overbought While Gold Is Leading To A Metals Bull Market
The current metals bull market is in its earliest days, but is setup to be more powerful than the 2001 to 2011 metals bull market.
Gold continues to shine as the best currency on the planet as it is at or near record prices against every paper currency in the world. Even while the US dollar (USD) has been relatively high due to the Fed propping it up with unsustainable high interest rates.
Next in the cards is for the USD to get under pressure as the Fed gets closer to lowering interest rates. I’m well aware of the argument that with inflation where it is, that there are sound economic reasons that rates should be higher. The Death Spiral of Debt and the level of interest payments on the debt are a stronger argument that rates need to come down.
We are in uncharted territory, with the Fed painted into a corner due to the prolonged Free Money Era after the 2008 GFC, which caused the inflation crisis. Made worse by the insane spending of politicians on the left and the right.
Another compelling reason that the Fed will have to lower rates is the growing problem in the jobs market. They ignore all the people that have left the workforce since the 2008 GFC and after the Covid pandemic.
Plus, they give us the smoke and mirrors show by reporting farcical employment numbers suggesting that the economy is near full employment. The fact that they are consistently revised downward is evidence that they are pretty much made up when they are initially reported.
They do this by considering full-time jobs (which are in decline) and part-time jobs (which are replacing full-time jobs with workers needing to take on one or more part-time jobs to make ends meet) as the same thing. Additionally, the government is trying to prop up the jobs numbers, and to buy votes, with government jobs on the rise.
When someone loses a higher paying full-time job, and has to take one or more part-time jobs, or gets a government job that is an economic drain, it certainly doesn’t mean the job market is strong. Far from it.
Playing with the numbers may give the Fed and politicians talking points, it doesn’t change the reality that workers face when it comes to jobs or the inflation they deal with every day.
Workers don’t get to live in a world of smoke and mirrors economic numbers, they live in the real world of pay that doesn’t go far enough when facing devastating inflation.
Politicians on the left and right are liars that only care about voters when it comes to election time. I give the “economists” at the Fed slightly more credit for seeing economic reality when it is right in front of their noses. They are well aware of the issues in the jobs market even if they promote a full employment narrative in their public relations commentary.
Despite Fed Chairman Powell saying he doesn’t see “stag” or “flation” the reality is that stagflation is knocking on the door. The jobs market is showing plenty of signs of stress which suggest the economy is getting stagnant, while inflation is persistent.
Stagflation is not a good look for the upcoming election. I know I shouldn’t be, but I am surprised the Fed has let things get to where they are, but that is what the Fed does. Over and over, they wait too long to react, then overreact, then rinse and repeat.
In Powell’s testimony before Congress this week, he reiterated that he doesn’t want to be too early or too late on lowering rates. With a chance of raising rates off the table.
The rates where they are have propped up the USD, but I doubt the longs are feeling warm and fuzzy about their positions when, not if, the Fed lowers rates.
The CPI numbers came in slightly lower than expected and when they did the USD got smacked and gold rallied. This is a precursor of what is coming when the Fed actually lowers rates instead of fixating on the dot plots.
Normally, when rates have been cranked higher and the USD is strong, gold will be weak. But, gold is performing very well in the environment of jacked up rates that propped up the USD.
Gold started the year basing. Then it rallied to record highs, kept most of those gains and has formed a powerful base much higher than the last one. It is now breaking out from the base and is ready to make new record highs. Gold is revving up its engine at the launch pad, the current rally should take it well over $2500.
While gold is looking for an excuse to break out to new record highs, the USD is trading like it is looking for any reason to drop. We are at an inflection point that has gold well positioned for take off.
I’m convinced we are in the early days of a metals bull market that will last longer than the one from 2001 to 2011. The first mover is always gold, then silver joins the party as does copper which is the gold of the base metals.
Gold is a monetary metal that the BRICS nations are embracing due to the Death Spiral of Debt. They know that with $300 trillion in global debt, that the world needs to return to the Gold Standard.
Their buying has already driven gold to record prices in every paper currency throughout the world. But, their gold reserves only represent a percent or so of the global debt, as they back up global debt with gold in a more significant way, it will drive gold multiples of its current price.
Another factor that has me confident gold is heading to $20k in the next 10 years is that it is a much better currency for international trade than all the global fiat currencies. The BRICS will be the first to start doing more international trade in gold and the West will be forced to do the same.
The clearing house will likely be in Singapore as it is quickly becoming the centre of physical gold trading in the East.
The paper market has controlled the price for much too long, made possible by highly leveraging the physical gold with paper gold. But, the East is taking control of pricing gold and it is trading on physical gold supply and demand. This will only continue to grow.
Meanwhile, as the demand is powerful, the supply chain from the major gold miners, all the way down to exploration is poorly prepared to feed the demand.
All the factors to see gold trade at multiples of its current price are locked and loaded. Folks can either watch it play out, or get involved. They will be on the right side of history and will benefit by protecting their purchasing power with gold.
Some will argue that consumers can’t afford to buy gold. Meanwhile they are pumping up the price of crypto currencies, tech stocks and artificial intelligence stocks. They can certainly afford to buy gold, they just haven’t decided to jump off those bandwagons and get on the gold bandwagon, yet.
They also have another precious metal that can serve as their monetary metal of choice in silver. Silver is a monetary metal with as long of a history as gold, plus it is crucial for solar energy. Solar panels use a lot of silver and have the metal currently in a physical supply deficit, the deficit is only going to get more bullish for silver.
Gold has already entered into the metals bull market, but silver is just starting, it’s about half its all-time high, so it still has a lot of catching up to do. Which is exactly what I think we are seeing the start of that will result in silver making a move to its record highs.
Copper is the leader of the base metals, and it has been trending in a similar bullish direction as gold. It recently, broke out above $5 per pound, which is its all-time high, then gave back some of the recent gains. Copper’s supply chain is very weak as demand is powerful.
Consumers and politicians worldwide say they want more alternative energy, electric vehicles and lately Artificial Intelligence. What they have a harder time answering is where are they going to get all the metals to make that happen, especially the most critical of metals which is copper.
Evidence that copper is heading higher can be found in the actions of the major miners and China. Every major mining company in the world wants more copper mines. While China’s housing market is challenged, they have been buying up lots of copper.
To many the Chinese copper buying doesn’t make sense, but they see the demand coming from Artificial Intelligence, and other sources so they are loading up.
All those metals, crucial to modernize the world, come from mining. To make the dreams reality means more mining, it doesn’t come from the magical metals fairy. It is time for consumers to switch from their not in my backyard mentality to hugging miners.
Gold is playing its role as the leader in a metals bull market, and then some. Copper is doing the same. Silver is starting to pick up steam.
The next assets to confirm we are in a gold bull market starts with the major gold mining companies and the gold ETFs. They are performing very nicely and have confirmed the move in gold is on sound footing.
Next, we should see the firming up of gold stocks down the food chain. To a degree this is already happening. I think this will get into overdrive as the gold miners report their second quarter financials.
During the second quarter of 2024, gold has had its highest average price ever. The first quarter was a strong one for several gold mining stocks. The second quarter promises to be even better as the price is significantly higher than in the first quarter.
The average price of gold during the second quarter is around $2350, which for some of the miners is approximately $1000 above their cost of production. This is going to make for windfall profits for some of the gold miners.
With those healthy margins, gold mining is a very good business that will get the attention of plenty of generalist investors. Ultimately, it will prove to be the catalyst for the gold stocks to join the gold bull market.
Considering that until late February, 2024, the gold stocks had been suffering through a bear market, and have gone from left for dead zombies to getting off the canvas. Several of them are well positioned for powerful rallies that significantly outperform the bullish move in gold.
In Closing
We are only in the earliest days of a metals bull market. The strength in gold suggests it will go much higher, multiples of its current price. Which is a strong argument that the magnitude of the current metals bull market will be stronger than the 2001 to 2011 metals bull market.
I recently put out reports discussing my bullish outlook for silver and copper, included in those reports were my top picks for those metals. This weekend I will do a report on my top picks in gold stocks.
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.
