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The main drivers of global stock, bond, and gold markets are interest rates and demographics. Unfortunately, most investors focus on items that get a lot of media attention but are almost irrelevant to price discovery in the markets.
I’ve predicted that there will be no trade war, but governments around the world will roll out a modest amount of mildly inflationary tariff taxes.
Clearly, top economists at both Fitch and Goldman have the same outlook that I do. Moderate tariffs are getting a lot of flashy media coverage, but what really matters to the major markets is Fed policy, US citizen demographics, and Chindian citizen demographics.
Some tax cuts have now been passed in America. Yellen and most democrats call them “ill-timed stimulus”. Most republicans appear to believe the tax cuts are well-timed stimulus that combined with deregulation could create tremendous GDP growth, using ridiculous demographics to do it. Throughout world history, this type of thinking has been typical in the late stages of ruling empires.
Libertarians believe there is no bad time to do a tax cut because tax cuts are about the restoration of citizen freedom and morality rather than economic stimulus. They believe these tax cuts must be accelerated until the income and capital gains taxes are eliminated regardless of the consequences for the debt-obsessed government.
The libertarians believe the US government resembles a mafia extortionist operation more than a government. Are they correct?
Well, probably. I don’t think most republicans or democrats really want to face the reality of what governments around the world have become, and nor do the governments themselves.
Regardless, with the Fed engaging in significant QT and a rate hiking cycle, the ability of the US government to finance itself is about to come under stress that is unprecedented in America’s history. Sanctions and tariffs are irrelevant to this stress. QT, rate hikes, and demographics are of epic relevance.
I don’t think it’s wise to try to pick an exact top in the US bull market for stocks, but it’s very wise to understand that QT and rate hikes are creating the “beginning of the end” for this market.
In 1980 the Fed began a 35-year rate cutting cycle with the baby boomers entering their prime working and investing years. Tax cuts from Reagan increased the government debt, but the demographics of the baby boomers and the Fed’s massive rate cuts made the government’s debt problem a minor issue.
Today, the Fed is engaging in a tightening cycle and the baby boomers are pensioners. The millennials don’t trust banks or government. Elderly savers are destroyed and generally soaked in debt. Tax cuts are morally correct, but they are turning the US government’s debt problem into an epic nightmare. Trump has more cuts planned, and rightly so. These cuts are going to ramp up the government’s debt nightmare, and from a libertarian gold enthusiast’s “end the extortionist insanity” perspective, that’s fantastic.
The bottom line: More stimulus is coming from the US government, and more tightening is coming from the Fed. This is what is known as “gold market nirvana.” Trump will soon announce infrastructure spending stimulus, and do so as Powell announces more rate hikes and accelerated QT. This will crush the bond market and unleash the inflation genie from her bottle.
Western stock and bond markets are going to enter a period of massive volatility and then collapse. Gold is going to continue to rise steadily and then go ballistic as that happens.
Millions of Chinese gold market gamblers that bought physical bullion at $1450 - $1320 in 2013 are being “made whole” as gold moves steadily higher now. The world’s largest gold gambler class is poised to begin a new phase of aggressive buying once gold trades at $1450.
India’s “Gold Board” will soon be launched, which will likely have the power to decide the import duty. In Dubai, talks are underway between gold jewellers and the government to streamline the VAT.
On the supply front, mine supply is poised to decline overall and in most countries except Canada and Russia. I’ve described the emergence of a “gold bull era” based on events in both the West and the East, and any gold market investor reading even a portion of what I’ve written here today can only come to the same conclusion.
This is the key daily gold chart. Gold is poised in what I call a “golden coil” formation, and there’s a miniature bull wedge in play as well. It’s unknown whether gold drifts down one more time within the coil or just blasts above $1370 now. What is known is that the upside blast is coming. Fed tightening, Chindian buying, and US government stimulus are going to make it happen.
This is the T-bond chart. The next big theme that US institutional money managers are going to face is the end of the bull market in bonds.
For 35 years, investors’ stock market meltdowns have been buffered by bond market rallies. In early 2018, that changed. The bond market barely rallied on stock market crash days, and fell on some of them. It has not reached the panic stage for money managers, but they are getting concerned.
Not since Paul Volker ruled the Fed has a Fed chair been as forceful about tightening as Powell. Last week, with the Dow down 700 points, he gave a speech to the media stating that more rate hikes were coming. A lot of money managers think he is bluffing. They don’t believe he will hike relentlessly or keep ramping up QT if the stock market falls.
These money managers are greatly mistaken, and as more rate hikes, QT, and fiscal stimulus turn their supposed safe haven of T-bonds into flaming rice paper, they will turn to gold. It’s already starting. GLD-NYSE Composite has seen tonnage rise to 859 tons during the latest stock market gyrations. The bond bull market is dead, and fiscal stimulus and Fed tightening are going to pressure the dollar as well as the stock and bond markets, leaving gold as the only safe haven for investors.
One of my largest gold stock holdings is of course Chow Tai Fook Jewellery Group (OTC:CJEWY), China’s biggest gold jewellery retailer. I cover the action at my gracelandjuniors.com website. This chart tells the story of Chindian demand for gold. Chinese gamblers don’t gamble much on paper gold markets. They buy gold bullion and jewellery to get in on the upside price action.
This stock is a key leading indicator for Western gold miners. This is an interesting VanEck Vectors Gold Miners (NYSE:GDX) chart. I’ve coined the term “Safehavenization of Gold Stocks” to describe the rise of institutional money manager interest in gold stocks as an actual safe haven from the coming implosion of US government, debt, and stock markets.
The volume pattern is positive for GDX and most gold stocks, but what’s most interesting is that a price rally of just a few dollars a share represents almost a ten percent gain. For institutional money managers facing the hurricane winds created by fiscal stimulus and Fed tightening in stock and bond markets, gold stocks are becoming an ever-more enticing opportunity for both shelter and gain. Gold investors around the world should be totally comfortable buying various gold stocks on all two and three-day pullbacks. Sell a portion of what is bought on rallies, and hold the rest to enjoy the biggest rewards offered in the glory of the gold bull era!
Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form. Giving clarity of each point and saving valuable reading time.
Risks, Disclaimers, Legal
Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualified investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:
Are You Prepared?
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