A Very Dangerous Economic Period

Our Good Friday celebration shortens the trading week to just four days. The last day of this trading week, April 1 was a day of resurrection for stocks more in tune with what we Christians will celebrate in the spiritual realm on Sunday. April 1 was a happier risk on trading day with stocks, bonds, and commodities all rallying. But make no mistake. We are in a very dangerous period when economists are pushing new ideas as aggressively as Donald Trump prompted insurance companies to push new vaccine technologies. For those of us who have been vaccinated, we can only hope and pray the medical scientists are more competent than economists who graduate from the likes of Harvard, Princeton, and Yale with PHDs behind their names. Our economists and politicians who are in bed together continue to push the same policies and expect a different outcome. If what they seek is a communist/fascist dictatorship, then there is a method to their madness. But if what they wish is for a happier, free, prosperous outcome policy for the masses, they couldn’t be doing a worse job as they destroy efficiency and merit-driven egalitarian outcomes that can only come with free market capitalism. 

So much for my sermon on economic policy. Statists and their banking friends slammed gold early in the week while pumping money into the system at an alarming rate of speed, and thanks to the current administration we have trillions of dollars being created out of thin air to fund all manner of vote-buying fantasies concocted by the Democrat Party. And they had better speed up the printing press even more, because they are inviting the whole world to crowd into this country via our southern border, no matter if they are infected with COVID or not. Americans themselves, 

especially white people, are rapidly becoming second-class citizens. Whatever happened to a country that tried to improve by passing civil rights legislation that sought to judge people not by the color of their skin but by their character? I think we have to be prepared for a future that looks very different because our youth are not being taught truthful history but rather a false version that guides them to trust not in God as Creator as our Founders did, but in the gods of government with dictatorial power. As Congressman Ron Paul used to say, “If we are free we will be prosperous.” But with a loss of faith in our Creator, as G.K. Chesterton explained, we will lose our freedom if we forget who our Creator is. Chesterton famously said, It is only by believing in God that we can ever criticize the Government. Once abolish the God, and the Government becomes the God. That fact is written all across human history….The truth is that Irreligion is the opium of the people. Wherever the people do not believe in something beyond the world, they will worship the world. But, above all, they will worship the strongest thing in the world.” 

With markets increasingly manipulated by government it is increasingly difficult to trust your lying eyes. We have seen how since the creation of the IRS and the Fed in 1913 that our markets have become much less stable. And especially since 1971, when Nixon removed us from the gold standard, market volatility and investments based not on economic value but on flows of funds created out of thin air have dominated the investment landscape. Which, in a way makes Michael Oliver’s work all the more valuable, because rather than based on fundamentals it measures momentum from wherever it comes and looks at structures to determine whether an investment is standing on solid footing or not or whether a ceiling is about to be broken through. 

If there is one solid asset to own to retain value, it’s gold. Central bankers and large money-center banks can and do manipulate gold and keep a lid on its price as a propaganda ploy to keep people confident in the fiat money system because it enables them to continue to buy votes and redistribute wealth from those who actually produce it (miners, manufacturers, farmers, and inventors). The key is not to let the charlatan bankers and politicians cause you to lose track of the longer term trends for gold. Since this letter is so fundamentally based on gold and gold related investments, I have chosen to share some of Michael Oliver’s March 31, 2021 remarks on gold and other markets closely related to gold and gold shares, as follows: www.OliverMSA.com: 

“For the time being the synchronicity of the gold and T-Bonds trends is a technical fact. That coincident linkage will probably begin to flip near the end of this year. For large asset managers, those two markets are seen as “alternative” and “safe” categories. And it’s clear that money shifts into those two alternatives whenever they sense that stocks are about to produce risk—risk that many of them already recognize in the U.S. stock market. 

“The fact is that the U.S. stock market is into its twelfth year of upside since the early 2009 bear low, arguably much of that sponsored with intent by the Fed and its policies over those years. And it’s also clear that the historically narrow and very heavily-weighted leadership symbols of the U.S. market created a vertical blow-off beginning late last summer. It’s also evident to anyone with eyes open that the action of that market leadership has measurably weakened, especially relative to the broad market, over the past few months (something MSA was focused on prior to that now obvious slump).

“If we see the beginnings of price downturn in the U.S. stock market in Q2, as MSA expects, then movement back into now-oversold T-Bonds and back into gold (with its aged and layered correction of the past eight month) will commence again. So, we are highly focused on defining those turns because once sufficient dominoes have begun to topple (especially monthly momentum as a first factor to watch—price vs. 3-mo. avg.) then what follows could pick up pace very quickly. In other words these markets are likely to present a “surprise” event. Stocks down, gold and U.S. government bonds upside. And with some speed in the turn. For now the sentiment seems to be that gold and T-Bond prices are headed down forever, and stocks the other way. Typical sentiment prior to change. 

“Over the next few days, with the beginning of the new month and new quarter, MSA will issue reports on gold-and-related, U.S. government bonds, and the U.S. stock market. These reports will be spread over the next few days and into the 360Weekend Report (all asset category report). 

“If your interest is mainly in the U.S. stock market, you should also focus on gold and Bonds as inverse indicators. Or if you are long gold-and-related and nervous, as so many seem to be, then watch U.S. stocks and T-Bonds for inverse and coincident signals for your gold position.”

The risk on/risk off relationship between risky stocks (S&P 500) on the one hand and “safe haven” assets like T-Bonds and gold on the other couldn’t be clearer. Michael thinks this relationship is likely to hold up with money moving into gold and T-Bonds when the equity market finally meets its Waterloo.

With regard to gold, a close any day in April closing above 1706 would be viewed as a positive. More positive would be an April close above 1726. You can check the first objective off because the April 1 futures contract closed at 1715.60.

What would cause the T-Bond and Gold to lose the current correlation that Michael suggests may take place late this year? I should confirm this with him again when he is on my show but I think he believes it will take place when confidence is finally lost by investors in the ability of the Fed to keep inflation and interest rates rising beyond the control of the Fed.  At the same time, the dollar would likely collapse, leaving investors with little safe haven other than gold and silver. If Bitcoin and other crypto currencies are tied to dollars and other fiat currency, perhaps that will be the time they seek to attach themselves to gold. Given a lack of confidence in currency where else could they go but to the monetary metals? With regard to silver, Michael’s work tells him we need to see a close next week above $25.33 to trigger the next move toward the upper end of its eight-month-wide range, meaning $27 on up.

The average gold price for the month of March 2021 was $1,718.25. The 20-month average was $1,704.07, and the 40-month average as of the end of March was $1,495.65.

As you can see from the chart, the average price of $1,495.65 is $473.57 per ounce below the high of $1,969.22 in August 2020. That explains why every gold share sector in my Model Portfolio is in negative territory so far in 2021.

By contrast, a glance at my Model Portfolio perform­ance on the prior page shows that the commodity and tech sector is up by a whopping 90.42%. Yes, some of that is due to Amyris, a revolutionary chemistry company that is in the process of lowering the cost of all manner of production in massively different fields. But it is also related to rising commodity prices for energy, including uranium and metals. It is further anecdotal evidence of rising commodity prices, as money is now not only going into financial assets but also into commodities, which is putting pressure on interest rates, which may well finally threaten the long-in-the-tooth equity market bull market. As you can see from my IDW chart on your right, March 2021 marked still another new high since I started using this as a proxy for inflation in January 2005. It should be noted that had my IDW been calculated on April 1 rather than March 31, it would have stood at 182.39 rather than 181.46.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.