China, Gold, and Momentum... Oh My...China continues its quantitative support - and that's been bullish for metals...
Quick Note: Five sectors are currently in the red… energy is dipping, and the number of stocks declining (particularly consumer cyclical) is rising in the Russell 2000 and the S&P 500. If you’re not a member, now’s the time. This is the longest momentum run we’ve seen since I started this - and we have to exercise caution right now.
Good morning: Wednesdays are now the official pre-6 am wakeup call. My wife has to be at school much earlier on Hump Day - and she’s added (gulp!!!) 10 more minutes to her morning drive… up from… four. But - if she’s up - I’m up. And that means, I’m sitting out on the patio while the dogs reluctantly go into the morning dew on the thick grass slopes, and act like I’m doing something wrong to them… nothing like a new home and life adjustments. Speaking of… adjustments. This is a very tricky market. I’ve been skeptical about the state of financials due to underwhelming banking reserves and concerns about Japan’s economic outlook. The dollar isn’t sliding as it was, and the Federal Reserve is still technically tightening its balance sheet (though that might go away as soon as the upcoming meeting.) Growth is tempered, the lower- and middle-classes aren’t spending, and there are deep concerns about subprime lending - at the auto and credit levels. However, the market continues to rise. Gold is now at a new all-time high. I’d love to take a victory lap on the Hedge of Tomorrow report from last March, but the reality is that this is NOT something to celebrate. The reality is that we’re facing deep pressures on our currency. Right now, more than 30% of millionaires in the middle class feel like they’re “Squeezed…” - so, what do the non-millionaires think? Meanwhile, copper, silver, and palladium continue to rise. Why? Supply disruptions at mines worldwide are squeezing copper. But to really understand copper in this environment, we need to look at…China. As I’ve said, the People's Bank of China has been aggressively pumping capital into its domestic economy. Someone told me, “But it’s not Quantitative Easing!” As if that matters. It doesn’t matter what a central bank calls direct capital injections, direct loans, or whatever else. The end goal is always the same: Stability. And stability is what China is getting… But here’s the thing. When China pumps, it leads to dramatically different outcomes than when the Federal Reserve pumps capital into the United States. China is a manufacturing country, so capital injections drive up the price of materials. Why is gold, silver, and especially copper moving higher? China’s injections spur manufacturing activity - which means higher prices. When does the United States do it? Financials - banks, private credit, private equity, etc. - go higher. Why? Because we’re a financialized economy. That’s it. Follow… the money printer. Gold can now purchase 65 barrels of oil… so that makes sense. If only the storage were easier on the latter… When it comes to gold… remember… the mechanism of the markets isn’t just active investment in the metal. It’s also the requirements of passive funds to follow their own rules and the flow. That means… money will continue to flow into gold-based ETFs, which will then need to keep buying. Goldman Sachs just raised its gold forecast from $4,300 to $4,900 in the last 24 hours. Goldman expects that central banks will purchase an average of 80/70 tonnes in 2025/2026. They expect Western ETFs to boost their gold holdings as the Fed cuts its interest rate by 100 basis points through the middle part of 2026. And they anticipate more speculation, which will give way to normalized allocation. I expect a pause in this rally at some point. But so long as this expansion of liquidity continues - and the more obvious it gets about the plan to continue debasing fiat currencies… the more attention gold will get. This afternoon, please read my follow-up to the piece I wrote on Saturday regarding the Temple Extraction system in Judea during the first century. I am starting to devise the precise strategy to protect your money, fight against inflation, and boost your confidence that you can and will overcome this intentional destruction of wealth. Let’s get to the market overview…... Continue reading this post for free in the Substack app
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