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General Market Commentary
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General Market Commentary
Debt & Stimulus Setting Up a Golden 2021?
BY: GERARDO DEL REAL
What a week.
It appeared gold was headed back to test the $2,000 level before a rip your face off stock rally on the back of what appears to be a decisive Biden victory — and a vaccine that is said to be 90% effective against Covid-19.
The news led to a rotation of capital back into the major U.S. indices and profit taking in the gold space.
So what comes next?
Pullback or not the perfect storm is building for gold.
One of the world’s largest gold producers in the world — Barrick Gold — estimates a 10.8% drop in third-quarter gold production. It’s not from lack of wanting to take advantage of elevated gold prices, it’s the lack of supply available to mine.
Simultaneously the people in charge of monetary policy — central banks — have signaled they’ll do whatever its takes to backstop financial markets and are begging the people in charge of fiscal policy — politicians — to provide more fiscal stimulus so they can create money out of thin air and buy the stuff — stocks and bonds — that keeps rich people rich.
All during a pandemic.
I can’t make this stuff up and it’d be funny if it wasn’t so tragic.
As the Financial Times recently reported, according to the International Monetary Funds’s (IMF) Fiscal Monitor, fiscal support has amounted to $11.7 trillion, or close to 12% of global GDP, as of September 11, 2020.
In Europe, the European Central Bank’s (ECB) balance sheet just hit a new all time high — now equal to 66% of the Eurozone’s GDP versus the Bank of Japan’s 137% and the Fed’s 37% of Japanese and American GDP, respectively.
Again, one day the dollar will meet its maker but for the time being it’s the best in class among a lot of bad choices.
But back to gold and why the recent consolidation in the gold space — and the resource equities — is healthy and necessary.
Monetary and fiscal policy is as predictable as I’ve ever seen it. Faith in governments continues to wither and be clear, the government realizes the current monetary system is living on borrowed time.
Bitcoin has surged to multi-year highs recently as none other than the IMF has published its study on the “complex interactions between the incentives to adopt and use central bank digital currencies (CBDCs) and global stable coins (GSCs).”
Corporations aren’t waiting around for central banks, governments or institutions to make the pivot away from paper currencies.
Paypal just announced it would begin supporting cryptocurrencies for the first time, allowing any PayPal account holder to store, buy, and sell popular virtual currencies starting later this year.
Much like the gold space, billionaire fund managers like Paul Tudor Jones are now turning bullish on cryptocurrencies.
I’ve said for years that the next time gold hit real all-time highs it would need to do so alongside not just cryptocurrencies, but alongside a higher dollar as well.
That has yet to happen as the dollar flirted higher before retreating below the 93 level.
I continue to believe the dollar is in for a run higher predicated on the structural deficiencies in other currencies, specifically the Euro.
Could a significant run higher for the dollar lead to another short-term pullback in the gold price in Q1 of 2021?
Absolutely.
Does that change the narrative in the mid-long term?
Absolutely not.
Focus your buying in resource stocks that aren’t just depending on higher commodity prices, but that have company-specific catalysts that, if successful, will move shares higher.
A higher gold and copper price should be supportive of other catalysts, it is not the catalyst itself.
There are plenty of quality companies with drills turning and results pending which should lead to a very active end of the year.
And don’t look now, but the uranium and rare earth companies are starting to perk up.
Gold, copper, and even quality lithium companies are all starting to catch bids, which supports my thesis that it will be an extremely profitable 2021.
Let's get it!
Gerardo Del Real
Editor, Resource Stock Digest
For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Resource Stock Digest, Junior Resource Monthly, and Junior Resource Trader. For more about Gerardo, check out his editor page.
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