Stocks Hitting Bottom?

Despite the massive helicopter money and fiscal spending being thrown at the economy, it isn’t doing much to drive prices higher. Were it not for a 29.67% gain in oil this past week, which was not related to demand but to a potential decline in the global supply of oil based on the President’s suggestion that Saudi Arabia and Russia may agree on supply cuts, everything with the exception of T-Bonds and perhaps gold had a down week.

My conclusion is that this is really a risk off week, not only on the basis of the five data points above that are displayed on this page every week, but more so given the massive rise in the rates in the 1 Year US Sovereign Collateral debt obligations, shown below on your left. The fact that the rate has jumped from ~7% at the start of March to over 15% by the end of this week suggests the markets are rapidly becoming fearful of American risk. And who can blame them, considering the loss of 10 million jobs in the last two weeks! That, along with Goldman Sachs projecting a 9% negative GDP for Q1 and negative 34% for Q2, is nothing short of depression-level numbers.

Despite these rising fears and a stock market that is clearly starting a new bear market, gold has not moved much yet. The chart lower left shows where it should rise once a true capitulation in the equity markets takes place. It’s clear the mainstream is holding out hopes, as is the Administration, that we have hit bottom in stocks. That’s hard to believe, given the massive losses for a very large number of American corporations when Q1 financials are released. And that should be in direct contrast to the earnings that most gold mining firms should display during Q1. If the gold price were to regain its correlation with the Federal Reserve Bank total assets, a gold price of $3,500 would be in the cards. As My friend Eric Coffin stated in the webinar that I participated in, “You could not invent a more perfect environment for gold and gold shares.” Watch here:

The MIF webinar panel was in general agreement that investors are likely to shift into gold shares with a capitulation of the equity markets, much as what happened in 2008-09. But the first gold shares to make a move higher will almost surely be gold producers, while junior explorers tend to move later in a bull market. And so in my own trades this week I applied some cash to building a position in GDX, which is comprised of major gold producers, in the hope that I can leap frog over some of the juniors and then sell that very liquid security to plow back into more of a position in stocks covered in this letter.

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.