While it can be disconcerting to investors, it’s not unusual to see gold muddle about as it transitions from the summer doldrums to the often-stronger fall season, notes Brien Lundin, editor of Gold Newsletter — and a participant at the MoneyShow Last Vegas, Sept. 12-14. Learn more here.
What is unusual about things right now, of course, is the most accommodative monetary policy in U.S. and world history, and a Federal Reserve trying to make its own transition from such an extreme policy toward something more “normal.”
Using that history as a guide, there are three things we should remember about this attempt at tightening monetary policy from its ultra-loose current condition:
1) The metals typically weaken as Fed tightening is being contemplated, and then begin to rally once the first step in normalization is taken. It’s the classic “buy the rumor, sell the news” phenomenon. The speculators, having shorted gold on the rumor, then exit those positions, releasing the selling pressure on gold, on the actual news of the Fed’s action.
That’s what happened when we famously called the bottom of the gold market just as the Fed began hiking rates in December 2015, and I expect the same phenomenon to occur this time around.
2) Things are moving much more quickly these days. Remember, after Covid hit the markets in March 2020, the Fed accomplished in about five weeks what it took five years to achieve post-2008 in terms of monetary policy. We won’t have to wait years for this situation to resolve itself, and gold could rally simply off the announcement of a QE taper.
3) Finally, there’s good reason to believe that the Fed won’t be able to raise rates at all in this environment. And the stock market might not let it even taper QE.
The markets aren’t addicted to easy money…they’re addicted to ever-easier money. The entire house of cards that the Fed has built through decades of progressive easing could collapse at the first sign of any tightening.
Plus, the federal debt is at such a level now that any serious attempt to normalize interest rates would crater the federal budget under the weight of debt-service payments.
I guess what I’m saying is that the big picture for the metals is exceedingly bullish, and we just have to sweat out the short-term malaise — similar to how we have in the past, but with the added confidence of having the macro environment so enormously in our favor.
In regard to the short-term, the momentum indicators I follow point toward another few weeks of weakness. Looking ahead, it seems to me that the Fed’s September 22 meeting end would be a likely target date for some resolution.
Meanwhile, looking to some of our favorite junior mining stocks, we are expecting news as exploration programs start to spit out results. For example, Great Bear Resources (Vancouver: GBR) (OTC: GTBAF) announced that its Phase 2 drilling program at Dixie has begun.
While the miner continues to compile the data from the massive Phase 1 program to put together a maiden resource estimate, it will begin a four-pronged approach in Phase 2.
That approach will include testing the primary, four-kilometer mineralized area along the LP Fault along strike and to depths below 450 meters; infill drilling to supplement the grid drilling conducted in Phase 1 on the LP Fault, expansion and infill drilling on the Hinge, Limb and Arrow targets and an assessment of regional targets.
With a market cap hovering around C$750 million, Great Bear is well past the point where individual batches of assays from this program are likely to move the needle much for its share price.
That movement will more likely be dictated by broader movements in the gold market, and since that market has been hampered by concerns over the Fed’s shifting signals on inflation, Great Bear’s share price has come off by a couple of dollars this month.
But between the upcoming resource estimate for Dixie and the seasonal bounce I expect for gold this fall, the current weakness looks like a good opportunity to build or add to your position for the long term.
This is a name that's sure to get a lot of love from generalist investors if gold goes on the fall run I'm expecting. Great Bear’s still a buy.
