Metals Ripping!

What’s Next for Gold and Silver?

Did you hear that? It’s the sound of gold and silver soaring while mega-cap stocks stand still. Call it the “reckoning” or just the long overdue catch-up of precious metals, but it’s really just the beginning of a much bigger price move.

The right question at this point isn’t whether or not you’re too late to get on board with gold and silver. There are more than enough catalysts to push precious metals higher, and once the retail traders crowd in and pile on, gold in the $2,000s will be a distant memory.

For one thing, the commodities market finally got its confirmation that the Federal Reserve isn’t just going to bow down to stock traders’ demands. The fantasy that the Fed would cut interest rates six or seven times this year was just that: a fantasy.

After a while, the market finally got the message that Federal Reserve Chairman Jerome Powell wasn’t just going to backstop the market with six rate cuts, so the odds makers then said it would be three cuts this year. Even so, Atlanta Fed President Raphael Bostic only expects one rate cut in 2024 while acknowledging the possibility of zero cuts.

If the economy continues to accelerate, he can’t “take off the possibility that rate cuts may even have to move further out,” Bostic warned. In fact, the economy does appear to be accelerating as Americans continue to consume and rack up debt despite persistent price inflation.

It’s awfully hard to imagine Powell aggressively cutting interest rates when the Purchasing Managers Index (PMI) just broke above 50 for the first time since September 2022. Moreover, the U.S. added around 303,000 jobs in March, a figure that’s nearly 100,000 greater than economists had expected.

So, overeager large-cap index investors aren’t getting what they want, which is a Fed that’s ready to deliver multiple interest rate cuts this year. At the same time, precious metals holders are finally getting exactly what they want and deserve: proper price discovery in the commodities markets.

In other words, gold just broke out to another fresh high because it’s long overdue and the catalysts are all lining up now. Bond prices are under pressure, and richly-valued tech stocks lack direction now. Earnings season is about to kick off, and investors aren’t confident that Amazon can achieve the expected 175% earnings growth or that NVIDIA’s earnings will grow 406% year-over-year.

It’s no wonder the central banks of China, India, and other nations are aggressively buying gold. They see the inevitability of the U.S. dollar’s decline, the collapse of bond prices, and the uncertainty surrounding overpriced, hyped-up mega-cap stocks.

Not everybody understands what’s happening right now, but investors will have to pay attention when the influx into hard assets really ramps up. JPMorgan CEO Jamie Dimon’s letter to the shareholders basically spells out the dire scenario for index fund holders who refuse to diversify.

Dimon describes the apparent strength in America’s economy as being driven by consumer spending and “large amounts of government deficit spending and past stimulus.” The nation’s shameful $34 trillion national debt attests to this.

If anything, this is a compelling argument in favor of owning tangible assets today. You simply cannot trust the government and the Federal Reserve to do what’s right and reasonable for the long term. Bracing for impact is important now, but it will be an absolute necessity soon enough.

Gold and silver are essential during times of turmoil, and you’re undoubtedly aware of the ongoing flashpoint events in the Middle East, not to mention the Russia-Ukraine and China-Taiwan powder kegs. That’s why Dimon cited the “ongoing wars in Ukraine and the Middle East” as potential market disruptors.

Another “downside risk” to the U.S. economy and markets is the Fed’s quantitative tightening (QT) policy, which Dimon says is “draining more than $900 billion in liquidity from the system annually.” QT, along with interest rates that Dimon envisions rising to 8% or more, could lead to “a recession with inflation; i.e., stagflation.”

You don’t hear the word “stagflation” in big bank shareholder letters very often, so Dimon is certainly preparing for a worst-case scenario. Then again, a worst-case scenario doesn’t have to be problematic for your portfolio if you’re properly allocated.
 
The stagflation of the 1970s was bad for the so-called “Nifty 50” stocks (which sounds a lot like the “Magnificent Seven” group of today), but it proved to be a positive catalyst for gold and silver. You may recall that silver has approached $50 on more than one occasion, and it’s  hovering near $28 with plenty of overhead room even after its recent price surge.

On top of everything else, there’s also the imminent Consumer Price Index (CPI) data release. The big bank pundits are all lining up with their predictions, but bear in mind that the experts often get it wrong, and stock index investors hate negative surprises.

The last thing the market needs now is another reason for the Fed to delay interest rate cuts. With large-cap share prices so elevated, the path of least resistance is down instead of up.

It’s the opposite for gold and silver, though. The next phase is up, and it’s only a question of how high and how much you’d like to buy.