Setting the scene for a 2024 gold bull run

Tuesday, 14 November 2023

[1 min read]

Dear Reader,

You gotta love Wall Street. From the Financial Review:

‘“We are finding more reasons to be constructive into year-end than we were a few weeks ago,” Fundstrat Global’s Tom Lee said in a note. “Namely, economic momentum has slowed in a way that has become supportive of softer inflation.”’

That’s all you need to know this week. Inflation figures out of the US on Wednesday (your Thursday) will determine the near-term direction of markets.

Better than expected inflation? Good.

Worse than expected? Bad.

And if better than expected inflation is a result of a slowing economy, who cares! It’s good for stocks.

This is really what the ‘soft/no landing’ narrative is all about. That is, a gentle slowdown that tames inflation…but doesn’t hurt corporate earnings.

Dare I say it…goldilocks!

Goldilocks indeed. Because after this gentle slowdown, the eternal optimists on Wall Street expect the economy to pick up again in 2024. That will see S&P 500 consensus earnings grow a handy 12% in 2024.

This could happen, of course. Anything can happen in an unknowable future. But it’s all about probabilities. And the probability of a goldilocks outcome in 2024 is low in my view.

Gold, on the other hand, is a lot more interesting. Gold stocks have endured a long bear market. The bear market may have ended in September last year, but the sector has struggled to gain investor interest in 2023.

According to gold analyst Brain Chu, that may change in 2024. In Aussie dollar’s, gold broke out to new all-time highs this year. But gold stocks haven’t kept up.

Perhaps that changes next year…

[5 min read]

Dear Reader,

I was in Melbourne last Thursday to attend Fat Tail’s in-person event, ‘The Assembly of Fat Tailers’, which brought together some of our most loyal readers at Fat Tail Investment Research.

The last time we held such an event was in 2018. Much has happened in the world since.

What blew me away was the level of positivity in the room. After all, 2023 wasn’t an easy year in the markets.

Whether it was cryptos, small caps, commodities or tech stocks…everything has been incredibly volatile.

But the atmosphere at this event would make you think everyone there had a great year!

Even fellow gold investors were brimming with optimism, despite declaring they were 25–40% down on their holdings.

I tip my hat to them having the winning spirit!

And I think their volatile journey could soon be approaching its fruitful period.

If history is any guide, gold is set to have a great year in 2024. Which should also lead to great gains for gold stocks.

What am I basing this on?

Let us explore that now...

Looking back at gold in the last decade

The world lived a massive economic policy experiment after the subprime crisis.

The zero-interest rate environment was a test on whether policymakers could defy nature and treat the global financial system like a machine.

Gold was the barometer. The experiment would be deemed successful if gold remained stable as policymakers cut and raised rates as they liked.

But gold rallied hard in 2009–11, reaching close to US$2,000 an ounce…and almost derailed the experiment.

Then, in 2013, former US Federal Reserve Chair Ben Bernanke slammed gold down by using an unconventional strategy.

From there, it traded in a tight range from mid-2013 to early-2018. That allowed the experiment to continue.

By the end of 2015, the Federal Reserve felt it was ready to bring the economy back to normal. It started raising rates.

This was the acid test.

However, US President Donald J. Trump shook up this experiment when he took office in January 2017.

He fought the US Federal Reserve for control of the economy. He wanted low interest rates to help the country revive manufacturing and investments. Meanwhile, the Federal Reserve needed higher interest rates to keep inflation down.

The Federal Reserve accelerated the pace in raising rates into 2017–18. President Trump publicly slammed this approach, saying it was destabilising the economy.

In late-2018, the Federal Funds Rate approached 2.5%. The markets had twice corrected sharply during the year. It was close to tipping the markets over. There was no choice but reverse approach — so rates began to be cut from mid-2019.

Gold soared as it happened, breaking out of the tight range of US$1,045–1,400 an ounce.

With the global outbreak of the Wuhan virus, the US Federal Reserve cut the interest rate back to zero. It capitulated on its monetary policy.

Effectively, the Trump administration prevailed, but it was a pyrrhic victory.

While this happened, countries effectively shut down business activity. Governments pumped trillions of dollars into the economy to stop it from imploding.

Gold broke through US$2,000 for the first time, as you can see below:

The massive flood of liquidity was meant to encourage production and business activity. The opposite occurred. The excess cash led to corporations and individuals speculating in every market imaginable — bonds, stocks, properties, commodities and cryptos.

Even with the Biden Administration taking over in January 2021, this continued with renewed rigour.

Asset prices kept climbing and set new records.

In particular, the crypto market grew phenomenally. That market broke past the US$1 trillion mark on 7 January 2021. Ten months later, it peaked at almost US$3 trillion.

While many who participated ‘increased’ their wealth in this wild speculation phase, it was illusory.

It was wealth in numbers and digital blips.

The world would start returning to reality as it reopened in late 2021.

Inflation began rearing its ugly head. Now it was flowing back into Main Street with a vengeance.

Initially, central banks tried downplaying this. However, by the end of 2021, they conceded inflation would run rampant into 2022. They knew they had to act.

Most of you could remember the first rate rise in March 2022, just as the Russia-Ukraine conflict broke out.

Gold broke above US$2,000 for the second time in 2022 just as the Federal Reserve moved quickly to raise rates.

The world sees gold’s resilience

The last time the Federal Reserve tried to kill inflation was in 2013. Gold fell 45% in that cycle.

This time, the Federal Reserve’s monetary policy has been more abrupt. It has been the most aggressive rate rise cycle since 1980.

And gold is standing strong.

You can see below how gold has performed against the long-term US real yield in the last three years:

This year saw gold again trade over US$2,000 not once, but twice.

And as the year draws to a close, the Federal Reserve is showing signs that it’s done raising rates.

Even the real yield is now falling fast.

It’s looking a lot like 2019 again…

A ‘big comeback year’ for gold stocks in 2024? I’m betting on it

So what picture does this paint for gold stocks?

Let me show you where gold and gold stocks are trading relative to each other:

Can you see the significant valuation gap between gold and gold stocks?

If you look back in history, it’s looking a lot similar to 2012–16:

Gold fell sharply in 2013, causing a big selloff of producers and explorers.

It wasn’t until 2015 that larger producers such as Northern Star Resources [ASX:NST], Evolution Mining [ASX:EVN] and St Barbara [ASX:SBM] staged a recovery.

And early 2016 was the main event.

The mid-tier and junior producers took off and outperformed the large producers that moved ahead of them. Small explorers and early-stage developers saw even bigger gains.

I’m talking about a few hundred percent returns, minimum.

Many of these stocks fell by as much as 90% in the lead-up. Those who bought as they fell ended up recouping their losses, and more. And you didn’t have to buy at the bottom and sell at the top to make these gains.

That’s why I’m excited about next year. It also explains why many gold stock investors who attended last week’s event are optimistic.

The stage is being set for a gold stock rally in the coming months.

Start preparing now

If you want to get ahead of a potential 2024 gold bull market, I invite you to join my precious metals investment newsletter, The Australian Gold Report.

You’ll find out how to buy and store bullion, how to build a precious metals portfolio and what gold stocks to consider.

You can find out more in this video presentation, where we also reveal the dark secret behind why governments around the world are quietly buying gold…even resorting to any means necessary to get hold of it.

God bless,

Brian Chu,
Editor, Fat Tail Daily

[4 min read]

Dear Reader,

Between today and next week, anything can happen. Stock prices can turn on a dime. But big trends have momentum…the Primary Trend must run ‘all the way’ to the end. If the Primary Trend is now down — for stocks and bonds — there’s more bad news coming.

And what about the bigger picture…the future of America…and of western civilisation? Is it like a huge ship, headed to the dock and going much too fast?

On our drive down to below the Loire River, we pass a sign: ‘Battle of Poitiers, 732.’ It is on a rural road, between Tours and Chauvigny…the middle of nowhere.

No one visits. Because there is nothing to visit. It is along the banks of the Vienne River, rolling slowly down….past where David Ogilvy had his famous chateau (now for sale). No one knows for sure if the battle took place there…or elsewhere. It might not have taken place at all, but instead might have been nothing more than skirmish with a scouting party…reaching the limit of its incursion into what is now France.

The native Poitevins were the Palestinians then! The Saracens — mostly Berbers from North Africa — had conquered all of the Iberian Peninsula. By 730, they were seeing how deeply they could go before getting turned back. Poitiers was it. There, a force led by Charles Martel (the Hammer) stopped them.

And thus did the tide turn, almost 1,300 years ago…against the Islamic world of Arabs, Turks, Persians, Berbers and dozens of other nationalities that had converted to Islam…in favour of Christian Europe.

False Prophets

The drive to push the Muslims out of Iberia took another 700 years. It was then, when Granada fell to the forces of Ferdinand and Isabella, that the Reconquista was completed.

Then, it was the Muslims and Jews who were Palestinians…they had to flee, convert or become slaves. (Later, after they had converted, they were often accused of being ‘false Christians’…and burned at the stake. In Mexico, even Lutherans were killed, as heretics.)

Even before Muslims were swept out of Spain, Europeans were on the move. Crusaders established their own fiefs on the coast of what is today Israel. They conquered Jerusalem…and took Sicily from the Saracens. Little later, they were sending out explorers…and then colonisers…all over the world. North America, South America, Australia, Asia, Africa — Judeo-Christian European civilisation was triumphant…almost everywhere.

‘The West’ won. Its capitalism…its democracy…its fossil fuels and internal combustion engines…nation states…the rule of law…rational inquiry…bombs…science — those are the things that put western civilisation on top of the heap. For more than a millennium, European civilisation ruled the world.

But what’s this?

Forbes:

‘The West Has Lost Its Dominant Global Position…

‘Veteran diplomat and philosophical provocateur Kishore Mahbubani in his new book asks a question that has crossed many minds of late: “Has the West lost it?”

‘If “it” is the dominant position of Europeans and North Americans in the world, then yes. The rest of the world has caught up and are overtaking the West because they received and applied the gift of Western wisdom – i.e., scientific reason and an approach to governance where the rulers are accountable to their people, not the other way around. In this sense, the West is the victim of the success of its own ideas.’

A Party of Losers

Talk about a Primary Trend! What Oswald Spengler called the ‘Faustian Civilization’ — now called ‘the West’ — is on the skids.

A thousand years of history…always on the up-swing…always up-staging the competition…always with the upper hand against its enemies…and now ‘the West’ is slip-sliding into second-fiddle status.

Just look at the virtuoso of ‘The West’ — the US. Its elections reveal the rot at its core of the whole system. In the Republican candidates’ debate, Vivek Ramaswamy says his own party is a ‘party of losers.’ He accuses the president’s family of taking a bribe from the Ukrainians. He says the media is ‘corrupt’. And that the firepower industry has ‘spent trillions, killed millions, and made billions’ for themselves. He — an upstart, an outsider with his own money — is the only one who makes any sense at all. Naturally, the commentators named him the ‘biggest loser’ in the debate.

Most likely, the election will be headlined by the same two worn-out husks the nation has suffered for the last seven years — Biden and Trump. The former should simply retire and save his family further embarrassment. The latter should never have been allowed into public life in the first place.

Meanwhile, Congress — distracted by ‘culture wars’ — shirks its duty to avoid real ones…and can’t even put together a budget, much less balance it. As near as we can tell, the latest flop on the imperial frontier is in the Ukraine. The US promised to stand by Zelensky until he had driven the Russians out of the Eastern (Russian speaking) provinces. Now, after spending more than $100 billion, US policymakers are looking for other alternatives.

Ask No Questions

Another big flop is shaping up in Israel, where the whole world watches as the Israelis, backed by the US, conduct a ferocious killing campaign that won’t soon be forgotten. Whatever else may come of it, the US will never again be able to claim the moral high ground without triggering laughter and derision.

America’s financial situation is in trouble too. It is presided over by a privately-owned bank cartel — the Fed — whose misguidance added $27 trillion to the national debt so far this century (with more coming!). And it still pretends to be able to manage the US economy.

And the voters themselves are much too busy trying to make ends meet to look beneath the headlines. They are victims of a self-serving media establishment. The mainstream press no longer speaks ‘truth to power.’ It merely recites the latest propaganda talking points...and asks no questions.

In short, the whole foundation of ‘the West’s’ supremacy is falling apart — democracy, Congress, the dollar, firepower. Our most basic institutions are failing.

And where does it lead? Can you still protect your wealth by buying leading US stocks and taking ‘the long view?’

Stay tuned...

Regards,

Bill Bonner,
For Fat Tail Daily