Keep Calm And Buy Gold...

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Keep Calm
And Buy Gold

Here’s why today’s smartest investors aren’t concerned about gold.

In fact, they’re excited.

Last week I wrote you from the floor of this year’s Rule Natural Resource Symposium in Boca Raton, Florida.

As you might remember, I wrote that the attendees I was talking with at this elite event were wholly unconcerned about gold’s correction. (That was particularly notable since gold, and everything else, was selling off that day.)
 

Well, we’re experiencing another sell-off today, with President Trump announcing a new embargo on Iran and both sides trading strikes yet again.

As I write, everything but oil and the Dollar Index are diving in response. Gold’s off about $120 and has dipped just below the key $4,000 level...testing that support once more after having put some room above it last week.
 

Despite all this, I’m pretty confident that those investors I exchanged views with last week are still unconcerned. That’s because they understood the long-term drivers for gold.
 

In fact, the next day I took the stage and elaborated on both the short-term and long-term factors for gold.

The Story Hasn’t Changed

First, I emphasized to the audience that there are just two factors currently holding gold back: The war with Iran and fear that the Fed will soon turn to rate hikes.
 

In regard to the former, Western traders are now setting the gold price, and they’ve lumped gold in with other risk assets. So the trading theme goes like this: A war in the Middle East leads to higher oil prices leads to higher reported inflation leads to Fed rate hikes...so sell everything.
 

My point to the audience in Boca was that the conflict with Iran will end at some point, and when it does this factor will be eliminated.
 

We’ve had lots of false starts and you know that I was skeptical of the last announced deal, but eventually this conflict will fade away.

Of course, a conflict resolution and lower oil prices would go a long way toward eliminating the second factor. But regardless, the idea that Kevin Warsh is suddenly going to turn hawkish after being installed to be the precise opposite of that, seems fanciful to me.

Which gets us to the most important point I made to the audience: The overriding factor behind this gold bull market is the intractable federal debt conundrum in the U.S. and other developed economies.
 

No matter what happens in the short term, the trajectories of the federal debt and deficit are only steepening. Debt-service costs already exceed the budgets for national defense and Medicare, and are arguably out of control without any rate hikes.
 

But rate hikes would cause costs to absolutely explode from current levels.
 

The simple math argues that low rates — and in fact negative real rates — are necessary to keep the entire house of cards from exploding.
 

To help make this point, I featured some charts that my friend Peter Boockvar had just featured in his letter. First, Peter showed this chart:

As you can see, the 10-year Treasury yield has been spiking higher, aiming for the levels it reached at the height of the market’s worries during the U.S.-Iran conflict. Yet the oil price was still far lower than its peaks at that time.
 

Peter’s point: Perhaps debts and deficits are starting to matter.

In other words, investors are recognizing that currencies must be depreciated in the face of spiraling debt-service costs and are demanding higher yields in return for that eventuality.

To emphasize this point, Peter presented charts of rising 10-year yields for Japan and France, showing that this isn’t strictly a U.S. phenomenon.
 

Today, the 10-year Treasury yield has once again risen above 4.6%. Yes, oil is higher today in reaction to the renewal of the kinetic war in Iran, but it is still well below its heights during this geopolitical crisis.
 

I’m convinced, along with Peter, that the markets are looking beyond the issues currently dominating the headlines. And it won’t be too much longer before even Wall Street traders are moving back into gold.

All the best,

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

P.S. Peter Boockvar will be presenting at this year’s New Orleans Conference once again, along with dozens of today’s top experts. With registrations pouring in right now, I suggest that you CLICK HERE to see the entire line-up and reserve your place while you still can.

Also, check out our Gold Newsletter YouTube Channel interviews below with some of the most dynamic junior mining companies in the current market. Both the current correction and seasonality have created an extraordinary buying opportunity for the sector, and I don’t expect it to last much longer.

• Kingsmen Resources Drills High-Grade Silver Targets Across Historic Parral District
   
• Cassiar Gold Targets Major Resource Growth with 10,000m Drill Program
   
• Kootenay Silver's PEA Delivers 6M+ Oz Annual Production & Strong Economics
   
• Pan Global Expands Escacena as 20,000m Drill Program Accelerates in Spain
   
• Gold Terra Confirms High-Grade Gold as PEA Advances Toward Year-End