Warning: Here comes another one of those "keep your eyes upon The Big Picture" articles. Day traders and others inclined to be impatient should probably just skip it. On second thought, day traders and the impatient are probably those most in need of reading it.
There has been a lot of news over the past week. Some of it interpreted as good for the precious metals, and some of it—incorrectly—has been interpreted as a sell signal. So today, rather than focus upon the short-term direction of price, let's instead focus upon that aforementioned Big Picture.
When we do, what do we see?
Let's start with the election result. If it stands as is, then the only change in U.S. government is moving from a Republican to a Democrat president. In terms of deficit spending, is there any reason to think that Biden will be more fiscally "hawkish" than Trump? Of course not. This alone is bullish for gold. But then think of the still-possible chaos that could follow voter fraud investigations and a change in the result. You'd have to think that's a pretty bullish scenario, too, at least in the short term.
The other big news this week regards the possible effectiveness of a new Covid vaccine from Pfizer. While we all hope and pray for an end to this dreaded disease and a return to "normalcy", the simple fact is that it will still be at least a year before any measurable success in containing or eliminating the virus is possible. Why? Simply, the logistics of manufacture and distribution take A LOT of time. Understanding this makes the market reaction on Monday seem just a little overdone.
But regardless of all that, here's what gets lost if you fail to see The Big Picture...
The U.S. economy remains in disarray, with over 10,000,000 people still out of work since March. Businesses are still closing. Rents are still going unpaid. Mortgages are being foreclosed. The U.S. ran a $3.2 TRILLION deficit in fiscal 2020 (ended 9/30/20) and will very likely meet or exceed that level in fiscal 2021, regardless of who is president or any further progress made on vaccine development. Add that deficit to the volume of U.S. treasuries that are due to mature in 2021 and you get a total treasury issuance and refunding of at least $8.5 TRILLION. With foreign governments facing their own Covid crises and slowing/halting their UST purchases, from where will this $8.5 TRILLION come? I think you know the answer.
So, in The Big Picture, how is the present time not another buying opportunity for precious metals as we continue along the final stages of The Great Keynesian Experiment?
The bottom of the 2012-2015 bear market was seen in December of 2015, with prices near $1100 for COMEX gold and $14 for COMEX silver. Prices then stabilized over the next three years before the renewed bull market began in December of 2018, when The Fed, after...
- Trimming their balance sheet by $700B in five years
- Raising the Fed funds rate over 2%
- Driving the 10-year treasury yield over 3%
- Draining liquidity and money supply
- Sparking a stock market crash
- Setting off the REPO and Liquidity Crisis
...reversed course and began to cut rates and add liquidity to stave off an Illiquidity Collapse.
We caught this change as it happened and, in January 2019, predicted the breakout that was to come: Gold and Silver 2019 Price Forecast - Craig Hemke (15/01/2019)
Knowing these bullish fundamentals would continue in 2020 allowed us to make this accurate forecast back in January of this year: Gold and Silver 2020 Macrocast - Craig Hemke (07/01/2020)
And now here we are in November. The election is behind us and a Covid vaccine may be on the horizon, but FUNDAMENTALLY nothing has changed as we head into 2021. In fact, the case for precious metal ownership has only grown stronger...as noted above with the pending deficit spending and debt monetization.
So, again, now is the time to avoid impatience and the urge to day trade. Instead, and as the old saying goes (perhaps attributed to Warren Buffett), the key to long-term bull market success is NOT TIMING the market. Instead, it's TIME IN the market. This adage certainly applies today for gold, silver, and mining share investors.
Understand the fundamental bullishness. Keep your eye on The Big Picture. Prepare accordingly.