Gold has been waiting for a spark to start a trend in either direction.

The odds favor a move higher, eventually — but I expect more steep sell-offs in stocks...and therefore more volatility in the metals and all other assets.

June 3, 2022

Dear Fellow Investor,

Gold — along with nearly every other asset class — is waiting for some catalyst to jump-start a move.

And on all evidence, when that spark happens, it’s likely that all the markets are going to head in the same direction, at least initially.

The reason? Because once again, the Fed and its monetary policy (now represented by its newfound determination to tighten) remain the overwhelming driver for nearly every investible asset class.

Since the 2008 great financial crisis, I’ve often commented on how easy-money policies from central banks have floated every asset class upward at the same time. One result of this artificial pumping of the markets is that investments that had been historically uncorrelated, and therefore helped reduce risk in diversified portfolios, became positively correlated.

In short, when central banks are doling out easy money, all correlations begin trending toward “1.”

And surprise, surprise — that’s also the case when central banks begin taking that money back.

As you can see from the accompanying charts, for example, gold has traded in near lock-step with U.S. stocks (represented here by the Dow) and the Dollar Index (with the dollar scale inverted to show the close inverse correlation). In other words, gold and the stock market suffered the same decline, and are now trading sideways...while the dollar has strengthened against its fiat competitors, with that move also moderating in recent days.

The take-away? Central bank policy continues to drive virtually all the markets.

Quite frankly, I think this means some bouts of weakness ahead for the metals. That’s because I expect additional rounds of panicked selling in the stock market, as there’s been no sign of capitulation amongst investors.

Investors have not faced the fact that the Fed is committed to fighting inflation far more aggressively than anyone had anticipated...and that those efforts will be far less effective than anyone (except you and I) could have imagined.

So, until we have capitulation — an exhaustion of selling — we will have more free-falls in the stock market. And those liquidity vacuums will force selling in every other asset class, including gold and silver.

Still, the effects on the metals from the periodic liquidity drains over the past few months had been lessening, and I don’t believe gold should be affected as severely going forward. Therefore, while I’m not very bullish on the metals for the near term, neither do I foresee a major decline.

And longer-term, the one factor that should overwhelm everything else will be the Fed’s impotence on inflation, and its eventual retreat from tightening. And that should happen far sooner than I’d originally expected.

This, I expect, would mark the launching point of the second phase of the bull market in gold.

In the meantime, our hopes for big gains will rest not on a rising tide of higher metals prices, but on the achievements of individual junior mining companies. And there’s a lot of potential there.

In fact, earlier today I unveiled two new exciting junior mining stock recommendations in our June issue of Gold Newsletter:

I reveal all the details on these exciting opportunities in the June edition of Gold Newsletter — released just hours ago.

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All the best,

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

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