Fed Buying is Supporting Markets

Gold and T-Bonds, the safe havens, gained during the past week when equities were quite volatile. My IDW fell a bit again last week mostly because of commodity prices, which are taking a breather and perhaps providing some justification for the gain in T-Bonds. But there can be no doubt that the continuation of $120 billion per month in Treasury purchases by the Fed is keeping equities from a long overdue bear market. How can stocks go down when money printing is aimed at keeping that from happening? That’s one question I want to ask Alasdair Macleod on my show next Tuesday. The shakiness of stocks this week had me reducing 80% of my Amyris holdings. Yes, I fear I may be sorry. I   truly think Amyris may be a major winner like Apple and some other tech stocks of recent decades. But the need to hold cash if and when the equity market finally gets its comeuppance caused me to pull the trigger.

I like to chart average monthly gold prices as shown on your right because it helps me keep the longer-term trends in perspective. In recent months, the monthly averages have successfully tested the 20-month average, as you can see from my chart on the right. If you don’t keep your eyes focused on the longer term, the gold markets can seem hugely irrational For example, not long ago, gold rallied for six consecutive days and gold shares did nothing. On July 8, gold declined by $5 (-0.3%) and miners lost 3%. And that happened on a day when the US$ dropped and with negative real yields at negative 3.7%. Many gold share investors couldn’t take it any longer and threw in the towel with respect to gold shares and opted for more popular mainstream stocks. With rates going into deeper negative territory now certainly doesn’t seem like the time to exit gold and gold shares.  And as Frank Holmes just pointed out today, the yellow metal is now flashing a golden cross, meaning the 50-day moving average is trading above the 200-day moving average. In the past, this has been a bullish indicator for gold prices, which are still off some 12% from their all-time highs set last summer. Those who don’t see the big picture are often triggered out just at the wrong time.

As Fred Hickey pointed out in King World News on July 8, this mood is similar to what happened before gold took off in early 2016. In December 2015, gold double-bottomed near $1050. Gold rallied in fits and starts in first few weeks of January ’16 and miners ignored the rally. Even though gold had bottomed weeks earlier, miners didn’t bottom until the third week of January (final puke). Frustrating. Miners then doubled in three months! 

We can’t say this is a repeat but as Hickey noted, with miners enjoying margins of nearly $800/oz. and gold mining profits at record highs, it feels similar to that of December 2015 to January ’16. So this remains an excellent environment for gold and silver exploration companies as well as producers. For those of you who may not wish to venture into the higher risk/higher return exploration stocks, you may want to settle for producers like Equinox, Calibre Mining, and i-80 Gold Corp.

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.