Confidence: Gold > Government
When I first launched Junior Mining Monthly, it was predicated on the idea that governments around the world were spending at an unsustainable pace, that the general public would soon start adding and subtracting the numbers and come to the conclusion that there needed to be a change.
I then speculated that volatility would ramp up as a result of geopolitical and monetary turbulence that would be magnified by a bond blowup overseas that would send the dollar and gold (initially) both rocketing higher.
I also speculated that the lack of exploration in the commodity space would amplify the gains for the juniors and we would be privy to — and benefit from — a junior resource bull market for the record books.
The first part has played out as expected. Brexit overseas, Europe in a recession (outside of Germany) with negative interest rates, I could go on. You get the picture. It’s volatile overseas.
Here in the U.S., the last two election cycles have been all about the people asking for change. Donald Trump campaigned on a platform of draining the swamp and bringing hope to Americans who were being ignored by mainstream politicians.
In reality, the presidency is led by Goldman alumni and has prioritized — among other things — making sure the rich got their tax cuts (those came first) with a promise that a middle-class tax cut was to follow (remember that?).
Neither Democrats nor Republicans really care about you. They care about the people who fund them (lobbyists).
In other words, nothing new under the political sun.
The government is still shut down. The Democrats don’t care, the Republicans don’t care. Confidence in government is dying.
But are you not entertained?
401k plans are not entertained. The Dow just suffered the worst December since 1931. I bring all this up to highlight that volatility — as I’ve told you all year when things were peaceful — is here to stay.
The childish bickering by both parties is a shame because there have been brief glimpses of government actually taking a step in the right direction. Criminal justice reform is one recent example.
The few and far between have been overshadowed by a historically cheap commodity market and an even cheaper junior resource space.
I do not believe that the Fed will raise rates twice in 2019, I think the Fed blinks again and cuts rates after one more hike.
The economy is stable but there are signs it is slowing and Mr. Trump’s trade war — though hurting China more — is not helping.
The Federal Reserve Bank of Richmond’s manufacturing gauge recently fell by a record amount as shipments and new orders weakened.
This was the fourth district bank factory index to drop recently.
The drop was the most in data going back a quarter century.
U.S. home price gains are also slowing. Price increases over the last 12 months slowed to a two-year low. The culprit? Higher rates.
The bearish news, which I believe will continue into 2019, will provide the Fed enough cover to pivot and cut rates in 2019.
Despite the bearish news, insider stock buying recently surged to an eight-year high because they see the writing on the wall.
All this points to a stabilizing — and then a higher — gold price that sees gold finally rally in a sustainable way. A rally that will last years.
That rally may be in its infant stages as the yellow metal recently reached a six-month high.
Whether we get inflation here at home, defaults overseas, a recession, or QE ’til infinity, gold is finally positioned to resume its status as the safe haven of choice.
The pain we’ve endured the past year will become a distant memory soon and the mid-tiers and majors know it. Cue the M&A.
SPGMI recently published a report showing the mining industry saw gold exploration budgets rise 20% to $4.86 billion in 2018 from $4.05 billion in 2017.
Gold accounted for nearly 50% of total nonferrous exploration spending. Juniors increased their budgets by 35%.
Despite the increase, the report went on to cite that the number of companies working in exploration is still about 900 short of the total registered in 2012.
It won’t just be gold, either. You already know how I feel about copper, uranium, and lithium.
Get ready, stay selective, understand this is still one of the riskiest sectors in the space but one that can be extremely rewarding if you use the cyclicality to your advantage.
To your wealth,
For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.
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