With the rally in gold prices over the past two months having defied analyst expectations for continued weakness, precious metals remain under-owned and out of favor despite their strong relative and absolute performance into 2023.
Since a monthly triple-bottom took place in November, I related in this space last week that the gold price continuing its climb has been mostly due to several eastern nations having recently begun to diversify their foreign reserves into physical bullion.
This week, the now overbought gold price has maintained its bullish momentum above $1900 due mostly to the exponentially rising U.S. debt ceiling being reached on Thursday. With Republicans now in control of the House and wanting to cut spending, the debt ceiling debate has triggered a political showdown between newly empowered GOP lawmakers, and President Joe Biden and Democrats who had enjoyed one-party control of Washington for the past two years.
The U.S. Treasury Department on Thursday began using extraordinary cash management measures to continue borrowing under the federal debt limit, Treasury Secretary Janet Yellen told congressional leaders. The Treasury began a ‘debt issuance suspension period’ to last through June 5 that suspends investments in the Civil Service Retirement and Disability Fund which are not immediately required to pay beneficiaries.
Yellen also warned that the June date was subject to ‘considerable uncertainty’ due to the challenge of forecasting payments and government revenues months into the future. “I respectfully urge Congress to act promptly to protect the full faith and credit of the United States,’ the Treasury Secretary concluded.
But the real trouble could come in the summer. For now, the Treasury plans to use these so-called extraordinary measures to prevent a U.S. default. Yellen said its “unlikely that cash and extraordinary measures will be exhausted before early June.”
Nevertheless, the heart of the problem has been that bank reserves are held in government debt in Europe and the United States. Virtually every long-term held maturity since at least 2010 is bleeding losses substantially.
As the Fed raises rates at its fastest pace in 40 years, the artificially low interest rates for over a decade have set the world up for a bond crisis. Rising interest rates on over $300 trillion of global debt is yet another tailwind for a climbing gold price. After so many emerging markets issued their debt in U.S. dollars, the Fed has become the central bank of the world. This is the real crisis mainstream media avoids, as all the bonds issued at artificially low interest rates since 2010 are in a desperate losing position.
With governments having no intention of ever paying back global debt that continues to rise exponentially, I expect the loss of faith in the flawed monetary policies of major central banks to be the biggest driver for gold going forward.
Although the gold price has been outperforming the stock market since early Q4 2022, mining stocks remain deeply discounted when compared to U.S. stocks as investors are under-invested in the precious metals complex. A JMJ subscriber sent me the following message last weekend, which exemplifies the fact that institutional investment has yet to begin moving into the beaten down and left for dead precious metals space:
“Following their annual presentation to clients, I asked my investment advisor (and their corporate investment expert from Toronto) for their opinion on gold and silver and related miners for 2023. This is what they said:
“We don’t typically comment on specific sectors as our PMs tend to be very bottom up focused on individual securities. Our teams also rarely invest in mining/metal companies as it is inherently very difficult to foresee future prices for most commodities, especially metals. That being said, Silver tends to follow Gold’s direction when it comes to price movements with roughly an 80-1 spread, meaning that Gold is 80 times the price of Silver. Recently there has been a lot of volatility in the price movements of these two precious metals and they have really been in a trading range since August of last year when they hit their most recent peak (US$2035 for Gold and US$28 for Silver). Prior to that, they had been in a trading range since 2013. Since these two metals have very little practical use, the prices tend to be volatile and difficult to price. If you look at where they are relative to their most recent trading range, they are near the higher end (Gold at US$1920 and Silver at US$24.50). There is no sound thesis for them breaking out to the upside.””
My response is that most investment firms, advisors, and the Fed hate gold, as it exists outside the system. The Fed cannot manipulate or create gold the way they do Federal Reserve Notes. When gold rises, as it has been doing, it hoists a big red flag over Wall Street, the Fed, and the economy. All the lies, corruption, and secrets of the Fed and politicians cannot erase the dire message of a rising gold price.
My dearly departed friend and mentor Richard Russell prophesied apocalyptically in 2011:
“The gold-bears will be defeated. It’s only a matter of time…We’re moving nearer and nearer to the edge of the hurricane. I can feel it in my bones…I can feel them caressing my face – the early breezes. They are blowing gently and hinting of the forthcoming gold hurricane that will sweep across the U.S. and the planet with all the force and power that was seen when gold was first discovered at Sutter’s Creek during the California gold rush of 1849. The gold rush of the 2000s is in the wings.”
But at the same time, Russell also correctly warned of one possible danger before this takes place:
“However, BEFORE the great gold tsunami we might have a frightening gold correction that would clean out all the gold skeptics. This ‘clean out’ may be necessary prior to the big gold tsunami, and it’s a reason to hold some cash and not put ALL your money into gold at this time. Remember the old adage — “The market always does what it’s supposed to — BUT NEVER WHEN.”
The ‘clean out’ Russell referred to indeed took place when gold corrected nearly 50% from its peak of $1925 beginning that same year, to a significant low at $1045 just a month after his passing in November, 2015.
Sir John Templeton was also someone I studied when researching how to become a successful stock speculator during the early 2000s. Templeton started his Wall Street career in 1938 and went on to create some of the world’s largest and most successful international investment funds. He took the strategy of “buy low, sell high” to an extreme, picking nations, industries, and companies hitting rock-bottom, what he called “points of maximum pessimism.”
Templeton authored four edicts that completely set him apart from the contemporary financial landscape. All four can be attributed to the current state of the relatively tiny junior gold stock complex:
After a significant 7-year bottom was reached late last year, the mining sector is experiencing an impulsive rally with multi-day to multi-week sideways price congestions. Since bottoming last fall, both GDX and GDXJ have had two such pullback/consolidations, between 5 to 8%, and are currently experiencing a third.
The GDXJ closed above formerly strong resistance at $37 to begin 2023, which is a level that has become important support and 8% below the recent peak at $40.55. With the sector now overbought, this is a good time to accumulate long-term holdings in quality juniors on weakness.
Many quality junior gold stocks have been popping higher one by one from 4 to 6-month basing patterns since late Q4. During the second half of 2022, the Junior Miner Junky (JMJ) newsletter carefully constructed a concentrated portfolio of exceptional junior resource stocks with 3x-10x upside potential to hold during the current up-leg in the mining space.
If you require assistance in accumulating the best in breed precious metals related juniors, and would like to receive my research, newsletter, portfolio, watch list, and trade alerts, please click here for instant access.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.