| Commenting on and investing in the financial markets can be a humbling experience. A prime case in point being a note I sent out last Friday.
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| In a dispatch to our Gold Newsletter Alert readers, I explained the remarkable ability of gold and silver to rise despite powerful headwinds.
Today, that upward trend in the metals has been reversed, with gold dropping 1% and silver losing 2.5%.
Fortunately, I believe this setback is temporary, due to the overnight development that’s driving it. I’ll explain why...but first allow me to share some of what I wrote on Friday to my Alert readers to set up my rationale:
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| I’ve got an entertaining picture in my mind of all the market pundits trying to make sense of a day that stocks are falling, the dollar and Treasury yields are jumping higher...and yet gold and silver are soaring higher.
It just doesn’t make sense. This isn’t “normal” market behavior. But, as I tried to tell the media yesterday, these aren’t normal times.
Myra Saefong, the fantastic MarketWatch reporter who has been soliciting my market commentary for longer than either of us care to remember, emailed me yesterday to inquire why gold had been performing so well despite dollar strength and rising yields.
It was a prescient request, given how this is a big story today. And it made me look smart in the story she posted yesterday.
Not all of my comments made the cut, so here’s what I had written back to her in full:
Happy New Year to you and yours, Myra!
My thesis has been that dollar strength, rising Treasury yields and a rising gold price are all evidence of global concerns with the U.S. fiscal situation. The “bond vigilantes” are demanding higher returns in light of the risk that Treasurys represent with the U.S. debt and deficits at such elevated levels relative to GDP. Despite those fiscal concerns, the dollar is strengthening because it represents a safe haven in times of trouble, and also because of those higher yields. And gold, of course, is the ultimate safe haven, and is therefore being bought by a growing cohort of investors from central banks down to individual investors.
Traders are always focused on the Fed, but that focus has shifted a bit from what Fed policy may be to why the bond market is ignoring that policy. The dizzying rise in the 10-year Treasury yield began with the Fed’s rate cuts, and that’s not coincidental. The fact that the Fed may be losing some control over rates is in itself concerning, and is also adding fuel to the rise in yields.
Gold has been performing impressively against the supposed headwinds of rising yields and dollar strength, and I expect this performance to continue. There doesn’t appear to be an imminent factor that would take the price to new highs in the near term, but those kinds of developments usually come out of left field in any case.
Well, as it turned out we didn’t need a surprise bullish development out of left field — what we got instead was a surprise bearish development in the form of a shocking jobs number that obliterated any thought of a Fed rate cut anytime soon.
The January headline jobs number came in at 256,000 against the much lower expectation of 165,000. This drove the unemployment rate down from 4.2% to 4.1%.
This was a stunningly bearish report for risk assets. And thus, we’ve seen U.S. stocks nosedive in response, with the Dow down over 650 points as I write and the Nasdaq off over 2%. Moreover, the Dollar Index has jumped even higher and the 10-year Treasury yield has risen to 4.75%, with the 5% benchmark directly in its sights.
Given this backdrop, I nervously checked the gold price this morning, expecting a bloodbath.
So even I was pleasantly surprised to see gold — and silver — catapulting higher. Gold was up about $30 in the immediate wake of the jobs report, while silver was up well over 1%.
How could this be? I think for the same reasons I gave to Myra yesterday. Rising interest rates only exacerbate the debt trap that now encircles the Fed and the U.S. economy.
I didn’t mention it in my comments to MarketWatch, but a market view on inflation that differs somewhat from the Fed’s is also contributing to the bullish sentiment for gold and silver.
Of course, gold and silver’s divergence from the reaction in other risk assets was viewed as an opportunity too attractive for Western traders to ignore, and they quickly jumped in to short the metals aggressively, wiping out gold’s big gain.
The bear attack was quickly rebuffed, however, and both metals quickly rebounded. Gold is continuing to silence the critics and doubters....
...To say that the behavior of gold and silver in the current environment, with investor expectations having shifted from ongoing Fed rate cuts to no more cuts until the fall, has been impressive would be an epic understatement.
As noted above, every headwind possible has been blowing against the metals.
The upshot is that gold, and silver, want to go higher. As I’ve always said, the strongest confirmation of a bull market is when bearish developments are interpreted bullishly for an asset.
This is where we are now with gold and silver.
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| But What About Today’s Reversal?
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| I went on in that Alert to review some exciting developments with the companies in our recommended portfolio (but I’ll have to save those for our paid subscribers).
With everything seemingly so rosy for the metals on Friday, why today’s big sell off?
As you can see, the selling began very early this morning, in overseas/NY Globex trading.
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| This timing is coincident with the announcement of a tentative agreement between Israel and Hamas to cease hostilities and return the remaining hostages.
In other words, peace has (hopefully) broken out.
As you know well by now, any reaction in gold to geopolitical developments is short-lived, whether that be to the upside or downside. The only long-term driver for gold (and silver by association) is monetary in nature — concerns over the future purchasing power of currencies.
And this is why I feel the underlying uptrends for gold and silver will soon resume.
If you agree with me that the metals are firmly entrenched in the next historic bull market, you’ll want to leverage that trend with high-quality junior resource stocks.
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| As I mentioned, I cover many of the best and most explosive opportunities in my Gold Newsletter and Gold Newsletter Alert services. We have presented our readers with dozens upon dozens of the biggest winners in this market over the years.
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| Because the metals are on sale right now...and because I believe this to be a very short-term opportunity...I thought it would be a good time to offer up a short, 24-hour sale on Gold Newsletter and our Alert service.
Just CLICK HERE to get either one at a deep discount — but only for the next 24 hours!
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| Brien Lundin
Publisher, Gold Newsletter
CEO, the New Orleans Investment Conference
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| CLICK HERE to watch interviews by Brien Lundin and Kai Hoffmann with many of today's most exciting junior mining companies on the
Gold Newsletter Youtube channel.
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