Bank Stocks Lead Gold Stocks Higher

With “safe haven” bonds pressured lower and the stock market crashing in an inflationary environment, institutional money managers will turn to gold stocks. On the other hand, if there is no stock market crash, higher rates and QT are going to incentivize banks to make more loans.

Corporations will continue buybacks but at a slower pace. As they allocate funds to business investment, the tightening labor market is going to lead to workers demanding higher wages. This is only the very beginning of that trend.

Simply put, the last catalyst to push a lot of institutions into gold stocks in a meaningful way is wage inflation, and that tends to follow a rise in interest rates and higher bank profits.

Bank stocks around the world are surging. 

It’s unknown how many more rates hikes and how much QT will be required to usher in serious wage inflation and a reversal in money velocity. What is known is that the time is near.

The bottom line: Investors who want significant wage inflation that pushes gold stocks to new highs will get what they want, but patience is required. Nothing good happens before its time.

Regardless, my strongest recommendation is for all investors to own a serious position in both bank stocks and gold stocks to get maximum benefit from the transition to an “inflationary era”.

I’ve predicted that gold will go nowhere until the next Fed meeting.

That meeting is now just eight days away. With Chindian demand decent but not huge, the gold price is likely to continue in the drifting rectangle pattern that I’ve annotated on that daily gold chart until the Fed meeting ends.

Gold previously had a tendency to sell off quite dramatically ahead of past rate hikes, probably because “Fed speakers” made a lot of dollar-positive statements ahead of the hikes. Institutional money managers are becoming less concerned with the fact that gold doesn’t pay interest while the dollar does, and much more concerned that higher rates could cause tremendous damage to the US government bond market.

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