Be Bold And Go For The Gold

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SPDR fund (GLD-NYSE) gold tonnage roared above 900 tons yesterday and now sits at about 908. 

That’s solid action, and I’ll dare to suggest there’s more coming!

As the ominous month of October approaches, US stock market investors may have a new problem on their hands; a Treasury Secretary who has angered President Trump.

The potential rift between Mnuchin and Trump may make money managers more despondent about China-US trade deal prospects than they already are.

Goldman Sachs analysts have predicted that a major rise in volatility lies ahead for the stock market in October. 

Gold has a long history of performing quite well in most of these situations. 

Some gold investors tell me that they are worried about a repeat of 2008 for gold stocks.I have no concerns because in 2008 most money managers had never heard of QE or negative rates. 

Now, they know the Fed stands ready to whatever it takes to provide liquidity to markets, regardless of how inflationary that might be.

Trump also stands ready to act. He’s the most pro-markets president in a long time, and arguably in the history of America. Unlike Obama, he’s not afraid to use the power that he has and to use it pre-emptively. 

Trump will be on the phone with the big bank CEOs in a heartbeat if there’s even a hint of a major stock market decline. 

From there, I would expect him to call Jay Powell, and… I’ll dare to suggest that Jay will take his call!

Rather than cash, I expect gold, silver, and the miners to be the go-to assets in the next crisis. The mini-crash of 2018 gave investors a hint of what is coming during the next stock market swoon; a major surge for gold!

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chart of US T-bonds

Note the buy signal in play on the 14,7,7 Stochastics oscillator at the bottom of the chart. 

There is good symmetry between gold and T-bonds now. A bond market rally could help gold and silver make fresh highs for the year.

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Dow versus gold ratio chart

It appears to be a great time to sell some stock market holdings and buy gold with the proceeds.

The US government is caught in a trade quagmire, has horrible demographics, a peaking business cycle, and government spending and debt are rising relentlessly. 

Trump wants QE and negative rates, Powell tried to hold the line, but when central banks take on governments, it’s the governments that win.

Trump might not get all that he wants, but he’ll get a lot of it, and that’s great news for gold.

 The bottom line: From a technical perspective, gold is the asset of choice now. From a fundamental perspective, it’s the asset of champions.

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GDX weekly chart

After a “flagpole” rally began in May, a bull pennant pattern is now in play. The bottom line:

While the current reaction could continue, investors need to buy gold stocks now, because the upside potential reward vastly outweighs the risk involved in any temporary pullback.

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short-term chart for GDX

Gold stock investors who are nervous about a liquidity event like 2008 should buy put options and buy them now. For everyone else, the ongoing theme is sharp but minor reactions that are excellent buying opportunities. My recommended plan of action: Lighten up on the stock market. Be bold and increase holdings of gold!