Outsider Q&A 7.19.19

Written By Outsider Club

Updated August 1, 2019

Outsider Club’s Weekly Reader Question 

“I thought gold went up when the market goes down, but my gold stocks are up along with the market? What am I missing?”

— Katherine P.

jason_simpkins_250x285JASON SIMPKINS | Editor

It’s true that gold often goes up when the market crashes, but it’s not a hard-and-fast rule. And the two certainly aren’t mutually exclusive. It’s not an inverse ETF, after all.

If gold has an inverse relationship with anything, it’s the dollar.

Nevertheless, in this particular situation, gold and stocks are rallying for much the same reason: The market is pricing in a rate cut

For years, the market bludgeoned gold because it seemed the Fed was determined to normalize rates. However, there’s been a momentum shift over the past few months, as we’ve seen flashes of weakness in some areas of the global and local economy. Now, it looks as though the Fed is poised to reverse course.

If the central bank does cut rates, it will lower borrowing costs, lower bond yields, and increase liquidity. That, in turn, juices the market. Of course, it also weakens the dollar, which boosts gold.

gerardo_del_real_190x190GERARDO DEL REAL | Editor

This new gold bull market will be different from previous ones because there are different factors at play.

The trend at play is capital away from public assets and into private assets (think from overseas bonds to stocks, gold, even crypto).

The U.S. indices will continue making new highs. The dollar will strengthen (for now) as capital flees to the security of dividend-paying stocks, gold, and the dollar until the euro and yen are flushed out.

There is an order and that is it. Expect new real highs in gold and expect the leveraged gold juniors to soar.

This will be unlike any gold bull market before.

adam_english_2018_250x285ADAM ENGLISH | Editor

I wrote about the gold market earlier this week and I think this is related.

The gold sector — well a lot of the entire commodities sector really — is coming off of historically low levels of investment.

The gold price started to creep up due to economic, geopolitical, and currency concerns. That brought attention from some investors, which started re-inflating valuations for gold miners.

That momentum got the attention of others, and now we’re seeing gold miners outperforming the broader market, which is itself up a mind-boggling 20% or so year-to-date.

This trend is going to continue for a while as the action draws more attention, which draws more action, in a positive feedback loop.

Furthermore, rises in gold prices will have a multiplying effect for the share prices of companies with large reserves. After a certain point, the capital requirements of building and operating a mine — as large as they may be — are covered and any additional gold you pull from the ground only adds to profits.

Barring any major change in the coming months, I think it is safe to say this trend will be in place for a while. Make sure you hold onto those gold stocks and consider adding to them before the early profits come and go.

To learn more about our editors, visit our website. And keep an eye on your inbox for Gerardo’s (Mondays), Adam’s (Tuesdays), and Jason’s (Fridays) weekly articles. 


Submit a Question for
the Outsider Club

If you would like to ask a question of our editors, simply hit ‘reply’ to this email. Keep an eye out for future issues to see if your question has been chosen. Please note that not all questions will be selected, and due to the large volume of email we receive, it is unfortunately not possible to respond directly to those emails not selected.