The U.S. Fed rate hike got the attention of the whole planet basically. Rarely do we see so much focus on one specific news item.
Our loyal readers know that our main mantra in 2015 has been the overly hyped rate hike. The Fed Chairmen Bernanke and Yellen have been ‘yelling’ since 2010 that they will raise interest rates. Only after 5 years did they take action.
The narrative surrounding this has kept markets hypnotized.
The team at Secular Investor has gone through many up and down cycles, euphoria and other irrational stages of normal market cycles. Our 6th sense says that gold’s correction is the result of an irrational behavior of investors and traders.
Weak dollar ahead
If history serves as any guide, our thesis should be correct. The chart below shows that the dollar has always weakened, even significantly, after the first rate hike of a new rate cycle.
Source: US Funds
Earlier this year, we wrote that the dollar typically puts pressure duing the first stage of its uptrend. Case in point: the monstrous rally of the dollar in 1997, which had put a lot of pressure on commodities and gold. However, two years later, the dollar continued its surge, without pressuring gold and commodoties.
We believe we are in a similar situation today.
If anything, gold miners, the leading indicator in the precious metals complex, are confirming our viewpoint.
Weak dollar, new bull market gold miners
As the second chart shows, miners have NOT collapsed after the interest rate hike. On the contrary, they continue their consolidation, which started in November of this year.
We obviously want to see the 2015 lows hold. But given the muted effect of precious metals after the rate hike on Wednesday, we are extremely optimistic.
Our viewpoint is contrarian in nature. We know that it is hard for most investors to be contrarian. Investors are used to only believe what they see … but that is not a recipe for success!
If you really want to be successful in markets, you have to believe what others don’t see
And we really are not talking about predicting markets. There is ‘prediction addiction’ out there, and mainstream media loves to put up predictions to gain eyeballs.
Not here with Secular Investor. We look at market fundamentals and investor sentiment from a SECULAR perspective.
By doing so, you quickly get an idea of the stage within a secular cycle.
It goes without saying that we were truly astonished when even Deutsche Bank confirmed our contrarian viewpoint about gold miners. Is this a sign of a trend change?
Deutsche Bank views gold miners as a possible hedge against global uncertainty.
You read that correctly
The bank notes that balance sheets of companies are deteriorating, driven by three factors: deficit spending, poor merger & acquisition decisions, China’s commodity demand slowdown.
As a result, U.S. corporate credit quality has deteriorated to the weakest level in a decade. According to Deutsche Bank, this environment favors a defensive posture in companies with stronger balance sheets and non-integrated names.
Indeed, gold miners will shine once it becomes clear that monetary easing policies of central bankers did not improve the fundamental situation of the economy and companies.
Physical gold and gold stocks are the ultimate hedge against destructive central bankers.
Our recommendation is to hold 10 to 20% of precious metals investments. Do not overinvest, but certainly not underinvest neither, as you will not be sufficiently diversified.
In today’s world, nobody sees gold going up. That’s why you should be invested in gold related investments.
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