It’s important to remember that nothing goes up in a straight line, and this new gold bull market will have its own internal cycles.

The key will be to turn these to our advantage rather than being victimized by them.

March 20, 2023

Dear Fellow Investor,

Gold soared nearly $70 on Friday as worries peaked over the state of the global banking system — and what major rescue efforts would emerge over the weekend.

As it turned out, the big news was that Switzerland authorities orchestrated a forced takeover of Credit Suisse by UBS, committing up to a third of the country’s GDP to rescue its banking system.

In response to both this move and gold’s huge run on Friday, the yellow metal has dropped about $13 today on a spot basis and, at least at the time of this writing, seems to be clawing back its losses.

That we’re seeing a correction in gold today is not surprising. In a Gold Newsletter Alert I dispatched to subscribers on Friday, I warned that we would probably see a pull-back early this week, but that drop should be followed by a renewed rally after the Fed’s big decision on Wednesday and as fears began to rise again going into the next weekend.

There is another important dynamic at play as well....

While U.S. stocks are higher today in the same corrective behavior as we’re seeing in gold, the broader stock market fell again on Friday.

Taking a broader look, however, we see that gold has once again firmly decoupled from the stock market, and in a good way by rising while equities have fallen. Consider the following chart of gold and the S&P 500, with the 20-day correlation in the lower panel:

For years, ever since the Fed rescue efforts following the Great Financial Crisis of 2008, all the markets have been driven by the same all-powerful factor: Fed policy.

When that policy was historically easy, with zeroed interest rates and massive quantitative easing, all the markets floated higher on an ocean of central bank liquidity.

Asset classes that were traditionally counter-cyclical all began moving in unison. Stocks, bonds, precious metals and commodities all generally moved together, rising when policy seemed to continue easing, and falling when tightening seemed imminent.

Since the Fed began raising rates a year ago, this close positive correlation continued, with the only exceptions being a few short periods when stocks rose and gold fell.

But that started to change in December, as you can see from our chart, and we’ve been tracking this trend closely in Gold Newsletter.

In the lower panel of the chart, you can see that the 20-day correlation has dipped below the 0 line. This means that, rather than moving in unison, gold and stock are moving in opposite fashion. Even better: Gold has been rising while stocks have been falling.

The bottom line is that I believe the Fed will be forced eventually to pause its rate hikes while inflation remains persistently high. In fact, while I believe they’ll raise rates a quarter-point on Wednesday, that will likely be the last hike.

Once the Fed stops pummeling the markets with hikes, the markets will rejoice and they’ll all rise together.

Inflation, however, will remain elevated. And in that environment we’ll see continued shifting of portfolio allocations around the world toward gold and silver.

Given the tiny size of the metals markets relative to stocks and bonds, the resulting demand should send gold climbing to new record heights, and silver leveraging the move.

I’ve been reporting on this scenario over the past few months, and it seems like it’s beginning to play out now.

But, harkening back to my headline, it’s important to understand that this move higher will come in waves. We shouldn’t chase prices on feverish moves like we saw on Friday, but look to build positions on pull-backs.

And that’s what we’re seeing right now.

A worried market bid up the metals going into the uncertainty of the weekend, and we’re getting the natural corrective action today. Again, I expect the rally to renew after we get the Fed decision on Wednesday and as fears start to percolate anew toward the end of the week.

Last week I quoted Warren Buffet’s famous warning that “there’s never just one cockroach in the kitchen.” I’ll offer up another one of his sayings now:

“Only when the tide goes out do you discover who's been swimming naked.”

The point is, there seems little doubt that there’s much more to come in this emerging banking crisis. The risk-hedging policies of Silicon Valley Bank, or lack thereof, were likely duplicated by numerous banks in the U.S. and around the world.

You don’t raise rates at arguably the fastest pace in history, after building a financial system on the foundation of 5,000-year-lows in interest rates, without breaking something.

And probably a lot of things.

In short, there’s much more to come in this crisis, so make sure you’re ready to ride the waves higher in metals and mining stocks.

All the best,

Brien Lundin
Editor, Gold Newsletter
CEO, the New Orleans Investment Conference

P.S. Once again, we’re unveiling some extraordinary junior mining opportunities in Gold Newsletter. If you want to leverage the potentially record gains in gold and silver, CLICK HERE to subscribe.