$1,600 gold slips away - but just for now
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
The Dow has 29,000 in its sights this fine Thursday. Gold has slumped all the way from $1,610 two days ago to $1,550 as I type. Gold and silver stocks are down sharply and some precious metals investors are wringing their hands as Mr. Market seems to be ignoring fiscal, economic, and geopolitical reality—again.
My thought: “Are you Kidding?”
In the first place, gold and silver stock speculators don’t need Wall Street to tank in order to profit. Indeed, the same easy money trend is driving both higher. Not only are real rates in the US negative, just look at the Fed’s balance sheet screaming back up towards record highs.
The temporary tailwind from geopolitical shocks like the recent exchange of violence between the US and Iran is simply not necessary for us to come out ahead.
As for investors’ rapid dismissal of the latest Iran crisis as resolved, yes, that strikes me as fantastically naïve.
Optimists are saying that Iran deliberately avoided US casualties with its “slap in the face” missile salvo and that both sides are “standing down.” But, try as I might, I cannot convince myself that Iranians will be content with this slap. After dozens of people were killed when mourners at General Qassem Soleimani’s funeral stampeded, I can only imagine greater lust for revenge.
I suspect that the missiles were a highly visible way for Iran’s leaders to respond quickly—if not very effectively—while they plot something much more impactful.
Of course, I thought it would take Iran far longer to respond, so what do I know?
Well, I’ll tell you what I know: gold trading for “only” $1,550 is a great problem to have.
It sure beats gold stuck in the $1,300 range for half a decade. Given that we know which miners made money—and which projects had solid feasibility numbers back then—we’re now in a great position to know which stocks are most likely to deliver in spades in the current environment.
Gold bottomed in the $1,450 range in Q4 2019. This means that those producers that were profiting in the $1,300 range should have another banner quarter. That should become evident in the next earnings season, giving a lot more investors reason to buy into the sector.
And right now, Q1 2020 looks like it’ll be even better.
Best of all is that this correction is creating buying opportunities in gold ands silver stocks that got away from me last month.
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Beyond what I know, my view of the bigger picture is firmly bullish. Easy money and FOMO are driving Wall Street higher, but investors do know that risk assets—as the name implies—are not a safe place for their money. The next big scare could turn the recent $1,610 peak into a mere foothill of a far larger peak ahead.
And, as above, the easy money policies of the Fed, ECB, and other central banks are extremely bullish for monetary metals like gold and silver.
In such a world, it’s easy to picture gold rising as much this year as it did in 2019.
That would take gold to almost $1,800 per ounce—which would really light a fire under our gold and silver stocks.
But even a more modest increase to the $1,600 - $1,700 range should still bring a lot of momentum-chasing money back to our market.
No one truly knows the future, but I do think the odds are that the $1,600 level has only slipped away for now. We’ll be looking at it in the rear-view mirror again, but from above.
And I’m putting my own money where my keyboard is on this—today.
That’s my take,