From Lock Down To Melt Down

We’re in the middle of an economic depression, a global pandemic, riots in the streets and a new cold war with a rival superpower.

“Don’t worry,” says the stock market.

Dear Fellow Investor,

About six weeks ago I told you about a conversation I’d just had with Robert Kiyosaki.

Robert had called to ask if I could join him on his radio show to discuss gold versus crypto but, as it always happens with him, we covered all the latest news and events...of which the pandemic lock down was front and center.

I shared with Robert my experience from Hurricane Katrina that when people are stressed and feel that conventional rules of behavior no longer apply, then the thin veneer of civilization can be scraped away.

He stopped me there and asked me to explain.

What was going on at that time, I elaborated, was that the economic rules had been tossed out the window. Rightly or wrongly, Uncle Sam was printing and spending money with abandon, with no consideration as to the costs.

Further, businesses and society at large had been closed off — the routines of our lives had been completely disrupted.

Considering the stress and disruption, I predicted, if the lock down were to extend much longer then we’d start to see social rules discarded as well. The feeling that the old rules no longer applied, that typical repercussions are no longer in play, would lead to social disorder.

In other words, riots and looting.

We’d seen, firsthand, the looting aspect down here in the days after Katrina. And frankly, some of that was justified, at least as far as food and clothing. There weren’t organized protests or riots, because people were too busy just trying to survive from day to day.

But the point remains: When some of the rules are discarded, the rest are in jeopardy. And that’s what we’re seeing right now.

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Surprising Market Reactions

It seems a bit crass to examine the investment repercussions of these events when it seems as if cracks are spreading in the very foundations of our society.

But our job here is to examine, objectively and dispassionately, the implications that current (and future) events will have on your investments. There’s no shortage of other outlets for political rants.

And the implications of current economic policy are clear, even if the picture is muddied by the everyday fluctuations of the markets.

For instance, stock markets in the U.S. and around the world have been soaring, despite the ongoing troubles and strife. And over the past couple of days, gold and silver have been falling.

You would be forgiven for being surprised at this.

But these moves are understandable when you consider that everything is being driven by the monetary largess of central banks and governments in response to the global economic crisis...and the prospects for more of the same.

This explains the response from the equity markets, which will benefit from both more stimulus and any signs of green shoots in the economy. As I’ve said, these monetary trends are bullish not only for gold but also stocks, and gold bugs need to recognize this.

As for gold and silver, they’ve already had torrid runs of late, and a consolidation of these gains is not only expected but healthy. Unlike the stock market, however, in the current environment the metals won’t benefit from positive news on the economic front.

Thus, both gold and silver are down again significantly today as the ADP jobs report came in better than expected. The rosier numbers were largely a timing issue, but that’s besides the point as far as today’s market reaction.

So far, the markets are tracking along with my prediction of a soft patch for gold (and a rally in equities) as we see some good news on the economic and pandemic fronts. Even though the ADP number was a bit illusory, it bolsters my argument for the susceptibility of the metals to such news, which I do believe is coming up in a more relevant fashion.

The key thing to remember is that the long-term picture for gold and silver, and mining stocks, remains as positive as ever.

The level of monetary accommodation we’ve seen is literally unprecedented. And the Congressional Budget Office’s view, published yesterday, that it will take a decade for the U.S. economy to recover, is evidence (as if we needed it) that the accommodation will not be removed soon, if ever.

So take this setback as a buying opportunity. There are plenty of specific opportunities in the junior mining sector to take advantage of (as I’ve been detailing in Gold Newsletter), and more to come.

All the best,

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