Gold broke the $1,400 level last night, and folks are breaking out the champagne. I was right about the probable impact the Fed would have on gold prices. My social media accounts are going nuts. I have more new readers today than I’ve had in any single day since I launched The Independent Speculator last year.
And my stocks are having a great week, which is where the rubber meets the road.
That’s all fine, but if you’ve been reading my work for any length of time, you know that I’m not a cheerleader.
I’m not going to promise that gold’s breakout means that its next stop is the moon. No asset price goes up in a straight line, even in the strongest rally.
No champagne for me, yet.
Indeed, I think some correction and consolidation in gold at this point would be quite normal—and healthy.
Not everyone is in gold for the long haul. I’m certain that most of the paper gold traders who set the spot price in New York are just the opposite. A lot of these people will want to take profits now that they have them—of course they will.
If gold corrects in the near term, it wouldn’t mean the rally is over.
It would, however, be a great opportunity for those who didn’t see this rally coming.
Better still, gold and silver stocks didn’t lead this rally. My guess on why is that market sentiment has been so bad, even industry insiders didn’t dare believe it until they saw it. But why it is so is less important than the fact that many precious metals stocks—even some of this week’s big winners—are still relatively cheap.
This means it’s still possible to be a value investor in the gold stock space.
Consider what this means when mere signaling from the Fed that it may cut interest rates next month sent gold soaring. What will happen if the Fed follows through?
I do not think this is a case when “buying on rumor and selling on news” will work. Nobody knows for sure if the Fed will cut rates—and even those who think they know can’t be sure how much the rate cut will be.
The lack of clarity makes it hard for the market to price a possible rate cut into gold in advance.
And then there’s the possibility that good news on the trade war or other fronts will prevent the Fed from cutting rates in July. Remember: we’re still in the “good news is bad news” economy. Given the near 100% odds the market is giving to a July rate cut, good news before then could cause a violent fear reaction in the markets. Fear that the desired stimulus will be taken away could cause the major indices (which are flirting with new highs again) to reverse and drop sharply.
Such market reversals over the last six months have sent gold higher.
Best of all, if I’m right about some correction in the days ahead, even the best gold stocks could give those late to the game some great, last-minute buying opportunities.
I’m not predicting that—and I’m certainly not promising that.
What I’m sure of is that some correction after such a sharp rise is normal.
I also say it’s healthy because it brings new people in at higher prices, reducing the number of those who will take profits on the next bump upward.
It’s all good.
I just don’t want any of my readers to have unrealistic expectations about how and when Champagne Day is coming.
As I said yesterday, if you want to see how I’m deploying my own hard-earned money in this market, please subscribe to my flagship publication, The Independent Speculator.
Or keep up with my take on this and other investable market trends by signing up for my free, no-spam weekly letter, the Speculator’s Digest.
Either way, I’ll do my best for you.
Friday, June 21, 4:51pm, EDT, 2019