Risk And Reward

Since mid-March, the primary risk we faced was not being invested heavily enough in the metals and the miners.

Now, with good news coming in on the Covid-19 front and stock markets surging back into euphoria range, the short-term will see some classic price risk returning to the metals and miners.

Dear Fellow Investor,

There’s a market truism that bad news is good news for gold.

This has been proven true time and again over the years, with geopolitical flash points sparking short-term gains in gold.

But ever since the central banks took control over the investing markets post-1971, bad news for the markets has also been good for gold over the longer term, as it tends to spur central banks into easy-money policies.

This naturally leads us to consider a corollary to the above rule — that good news is bad for gold.

Here the evidence is also in support. And we need look no further than today, where a helping of good news on the Covid-19 front is sending the U.S. stock market rocketing higher, and gold along with the U.S. dollar diving.

It’s a classic “risk off” kind of day.

All Good, For Now

So is everything on the pandemic front all sunshine and rainbows now?

Well, from what I observed on the beaches and in restaurants over the Memorial Day holiday down here, people are certainly feeling that way. And because of the wide-scale disregard for lockdowns and basic social distancing, we’ll know a lot more about Covid-19’s transmissibility within a week or so.

For what it’s worth, it seems that the data — including a new report from the CDC — are showing fatality rates much lower than original forecasts, especially for those not in risk categories. This good news is leaking into the markets right now.

On the economic front, I think we’ll see people returning to normalcy much more quickly than the more-dire predictions. Brighter economic news is therefore also very possible in the days just ahead.

The bottom line for gold investors is that there’s a significant risk of weakness and/or price consolidation in the very near term. The next two weeks will be particularly important, as we’ll see data indicating whether the states that have had more-aggressive reopenings have had a concomitant surge in infections.

If there isn’t a surge in infections, then you can expect some weakness in gold, silver and mining shares.

If we do see an uptick, then the metals will be off to the races once again.

In light of this risk, if you own mining stocks that have doubled or more over the past couple of months, as some companies in our Gold Newsletter portfolio have done, then you should definitely consider taking at least a portion of your profits off the table.

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The Long-Term Picture Remains Bright
(At Least For Gold)

For gold bugs, the good news is that there’s more bad news on the way.

The level of monetary accommodation so far already exceeds anything we saw post-2008, with much of the stimulus this time injected directly into the U.S. economy.

We will see inflationary ramifications as a result.

Add in the escalating U.S.-China tensions, and there’s plenty of fuel to keep the gold bull market burning bright.

So while the next few weeks may worry me, the next few years have me very excited for gold, silver and our junior mining stocks.

All the best,

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