S&P Is Key To Coming Gold Rally
“It is only a matter of time now, and that time
is in months, not years.” Prior to the FOMC meeting
last week, I forecast that the Fed would be dovish on both interest rates and
the balance sheet reduction program, but this would mean that all of the dovish
“speak” since their verbal 180 in January that contributed to the rally in
stocks is now priced in. I believe that is now the case and there is little
more the Fed can say that will push stocks higher.
Other factors in the
stock market rally, such as China’s gargantuan stimulus in January that equated
to 5% of its annual GDP in 1 month, has been dramatically reduced. Stock
buybacks, which reached a record level in Q1, are now fast approaching their
buyback blackout period ahead of corporate earnings for Q1.
On top of that, global liquidity, the primary
driver of stock prices since 2009, is now falling again. Any
trade deal between the U.S. and China has now been pushed off until May “at the
earliest”, even though I don’t think any substantive deal will be agreed upon.
Taken together, this could mean that stocks are in for a very rough ride in the
next month or so.
Since early 2018, my
primary scenario for a historic low in Gold has been a Fed reversal in policy
to rate cuts and QE due to a stock market crash. We got the first leg of that
crash in Q4 followed by the relief rally in Q1, the second leg, and now we may
be about to drop in the third and final leg to lower lows in the S&P around
2100 to 2200.
Such a crash would
provide the Fed the excuse to not only cut interest rates and revert to QE
thereafter, but also unleash monetary insanity-on-steroids to boost risk assets
and kick the can a little further down the road one last time. The Fed has
already stated that it is considering various tools in addition to rates and QE
that it rejected previously. Negative interest rates, a cap on bond yields, and
buying corporate debt and equities are among them. This is on top of buying
massive amounts of maturing and new treasury bonds, as budget deficits and the
national debt soar at a time when foreign banks have basically stopped buying.
Just imagine how much they will need to print to do all of this and what it
will mean for the dollar. Under those circumstances, Gold can only go higher,
in my opinion. A lot higher.
In almost every major
crisis, bonds lead equities. Yields fall first, then stocks follow. In
November, 10-year treasury yields peaked at 3.24% and are now almost a full
percentage point lower at 2.39%. If credit is leading again this time around,
then we should expect stocks to fall sharply soon, perhaps as early as next week.
In such a scenario, expect bond yields to fall further.
As I wrote last week,
Gold still maintains a near perfect inverse relationship with real interest
rates, which have tumbled in recent weeks. This has been due to the significant
drop in bond yields. If this continues as stocks fall, then Gold is going
higher.
TIPS are the inverse
of real yields)
The only caveat to
that scenario is if the Bullion Banks do what they did between March and
October 2008 and try to squeeze out all of the weak longs before the massive
rally in Gold to follow. But even then, it just delayed the inevitable rally in
Gold which began in October and led to a near 3x rise to 1900.
I have said “No QE, no
bottom” in stocks. I believe the Fed’s return to QE is inevitable, and when that
happens, Gold will soar. It is only a matter of time now, and that time is in
months, not years.
Until then, the range
in Gold remains 1280-1350. A break of 1350 almost guarantees a test of 1377,
whereas a break of 1280 opens up a move down to the 200-day moving average at
1251 and the 200-week moving average at 1241 below there.
As I said last week:
If the Banks do try to force everyone out before the rally ahead, it will
likely create the last bargain buying opportunity in metals, perhaps ever.
“BTFD”.
John Rubino: Fascinating News From The Gold
Mining Sector And The Junior Miners
John says things are bubbling under the
surface, and a handful of emerging players put up good numbers and make their
investors rich. Here’s more…It’s been a boring few years
for gold miners in general and junior gold miners in particular. The metal has
been in a trading range, capital has been relatively scarce, and major deals
even scarcer.
But under the surface things are bubbling, as a handful of
emerging players put up good numbers and make their investors rich, while a
somewhat bigger handful of explorers find notable deposits. The result is a lot
of wheeling, dealing and empire building that gets little press but is
fascinating for the tiny subset of investors who care about this sector.
One event that might end up being notable is Eric Sprott’s
decision to leave the board of Kirkland Lake Gold:
Kirkland Lake Gold Announces Retirement of
Non-Executive Chairman
Kirkland
Lake Gold announced today that Eric Sprott, Chairman of the Company’s Board of
Directors will retire as Chairman and a member of the Board following the
Company’s 2019 Annual General Meeting of Shareholders on May 7, 2019. Mr Sprott
has served as the Chairman of the Board since November 2016.
Eric
Sprott, Chairman of the Board said, “During the past five years, we have
succeeded in creating a truly unique gold company which continues to have significant
upside potential. While I have decided that now is the right time for my
retirement, I fully expect to remain a very interested and engaged shareholder
of the Company.”
Now, this might be nothing. Eric Sprott is, like so many of us,
no longer young, and he’s got a lot of irons in the fire. So maybe he’s just
lightening his load a bit. But Kirkland is one of the gold mining world’s
recent success stories…
… so why would a player like Sprott leave its board just as
things are getting good? Perhaps, speculates a
poster on another miner’s online forum, because Sprott has found an
even better horse to ride – Novo Resources – in which both he and Kirkland are
major investors:
I
have long viewed Eric Sprott’s simultaneous Kirkland Lake and Novo Resources
[NVO] board memberships as so inherently conflicting for him such that at some
point he would naturally choose one over the other. Logically, the point in
time by which his choice would need to be made was at such time as it might
become clear in ES’s mind that [Novo CEO] QH and his team had in all likelihood
succeeded in establishing the validity and economic viability of their
exploration model, but before public disclosures confirmed it. And certainly
before investment opportunities that might pit the interests of miner Kirkland
against those of prospective miner Novo might arise. (For example, as presented
by a hypothetical buy out by either KL or NVO of Kairos or DeGrey or Pacton or
portions of their respective [Pilbara region, Australia] gold related tenement
holdings/mineral rights.
It
has also been my view that ES’s election would evidence which “horse” (as
between KL and NVO) he preferred to “ride” (predominantly see his own Pilbara
conglomerate gold wealth accumulate in). In addition, like many others here, my
analysis has been that ES would personally benefit (profit) to a much greater
degree if Novo rather than KL were to be the primary Pilbara wealth creation entity.
Given that, it is my present view that ES’s resignation from the KL board
effective after the KL annual meeting on May 7, 2019 is a strong positive
indicator that NVO will remain independent and that it (and its shareholders)
will be among the handful of entities that will most benefit and profit from
what I view to be the coming massive development of highly profitable
conglomerate gold mining in Australia’s Pilbara region.
It
will not surprise any here, then, that I continue to acquire stock in Novo and
was a buyer on this news.
Good
luck to all, and keep an eye on the news. I believe the QH & NVO RR train
is about to leave the station, and I hope everyone else who’s on it will join
me in the dining car soon for a rousing round of Waltzing Matilda — I’ll have
the champagne plus as assortment of local malt beverages and South Coast
vineyard products on ice for you.
Fund Manager: Price Won’t Stay Below $1300
For Long After Thursday’s Paper Gold Raid
Dave Kranzler explains and shows the dynamic
that allowed for Thursday’s gold smack-down, but Dave says price won’t stay
down for long. Here’s why…Gold was smacked $22 from top
to bottom overnight and this morning. It was a classic paper derivative
raid on the gold price, which was implemented after the large physical gold
buyers in the eastern hemisphere had closed shop for the day.
This is what it looks like visually:
As you can see, as each key physical gold trading/delivery
market closes, the price of gold is taken lower. The coup de grace occurs when
the Comex gold pit opens. The Comex is a pure paper market, as very little
physical gold is ever removed from the vaults and the paper derivative open
interest far exceeds the amount gold that is reported to be held in the Comex
vaults (note: the warehouse reports compiled by the banks that control the
Comex are never independently audited).
Today technically is first notice day for April gold contracts
despite March 29th as the official designation. Any account with a long
position that does not intend to take delivery naturally sells its long
position in April contracts. Any account not funded to accommodate a delivery
is liquidated by 5 p.m. the day before first notice. This dynamic contributes
to the ease with which a paper raid on the gold price can be successfully
implemented.
In all probability the price of gold (June gold basis) will
likely not stay below $1300 for long. China’s demand has been picking up and
India’s importation of gold is running quite heavy for this time of the year.
Soon India will be entering a seasonal festival period and gold imports will
increase even more. Today’s price hit will likely stimulate more buying from
India on Friday.
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