The Looming Gold Bull Market
Have you heard of Pierre Lassonde? Lassonde is the founder and chairman of Franco Nevada Corp [NYSE:FNV]. Franco Nevada is a US$18.5-billion-dollar gold royalty streaming company.
When Lassonde speaks, people listen. Few people have achieved more success in the gold sector than him.
Lassonde expects gold production to crash. The sector hasn’t made any large discoveries for years, which should put heavy upward pressure on prices in the years to come.
Lassonde also thinks that US President Donald Trump is good for the yellow metal. And that’s why investors will fare better with gold than with stocks over the long term.
My view is that you should prepare for the inevitable gold bull market. The yellow metal might not break out tomorrow. But it’s bound to happen. And it should create multiple new millionaires. So, while we wait for the bull market, let’s just go with the flow. There are still big profits to be made today.
The true story behind gold
Take a look at the daily chart for gold:
Source: tradingview.com; Gold Stock Trader
[Click to enlarge]
US$1,260 per ounce is the major support level. Only a closing below it should signal fresh lows.
US$1,300 per ounce is the major resistance level. Gold needs to get over this hurdle to rally hard again. I believe something needs to go wrong — which few people expect — for gold to rocket higher.
There’s a good chance that could happen.
Fundamentally, gold rallied following the release of the latest US jobs data. CMC Markets reported a fortnight ago:
‘Asian investors have to digest a mixed US jobs report which came out last Friday. The rate for the jobless category dropped to 16-year lows at 4.2% in September, with wage gain of 0.5% — both beating market expectations.
‘Strong wage growth and decade-low unemployment rate helped to underpin disappointing non-farm jobs data, which dropped -30k due to major disruption brought by Hurricane [Harvey] and Irma last month.’
The US lost 30,000 jobs last month — the first time in seven years — thanks to hurricanes Harvey and Irma. Gold jumped as the US dollar sold off. It surged to two-week highs when both the US and Turkey suspended all non-immigrant visa services on Tuesday.
US-North Korea tensions kept gold elevated into this week. CNBC reported last week:
‘The U.S. military flew two Air Force B-1B Lancer bombers over the Korean Peninsula in a show of force late on Tuesday amid high tensions over North Korea’s nuclear and missile programs, South Korea’s military said.
‘After entering South Korean airspace, the two bombers carried out air-to-ground missile drills in waters off the east coast of South Korea, then flew over the South to waters between it and China to repeat the drill, the release said.
‘The South Korean military said this was part of a regular exercise to bolster military defences and also to display the alliance between the United States and South Korea.’
Kim Jong-un doesn’t like military exercises on the peninsula. He said he would retaliate by shooting multiple missiles this week.
So far that hasn’t happened. And that’s why gold is trading lower today. But if Kim goes ahead with this plan, we could see gold shoot higher.
Remember, as a response to other military exercises, North Korea detonated a thermonuclear weapon on 3 September. It also launched a missile a few days later over Hokkaido, which flew about half-way to Hawaii.
Gold jumped over US$50 per ounce at the time.
We’re not saying that’s going to happen again. But a few missile launches could see gold trade higher.
There’s more to the story…
Don’t forget about Trump’s tax bill. Business Insider reported yesterday:
‘While pressure is mounting on Congress to pass a tax package, the calendar shows dwindling opportunity before the calendar flips to 2018.
‘With the House out for the week, there are 28 days remaining on the legislative calendar in 2017 in which both chambers are scheduled to be in Washington at the same time.
‘Analysts say that simply isn’t going to happen.
‘“The idea of getting tax reform done this year is a farcical fantasy,” Issac Boltansky, an analyst at the research firm Compass Point, told Business Insider. “Lawmakers have neither the time nor the capacity to formulate and clear a tax reform package in 2017.”’
Trump’s tax reform likely won’t pass. Senators Lindsey Graham and John McCain will probably pretend to support it and change their minds at the last minute. That’s what John McCain did to the healthcare bill.
Rand Paul is dead against the tax bill.
If the bill stalls, the stock market could stall; that could prevent another US interest rate increase. Meanwhile, the Fed’s balance sheet unwind could see the US dollar dip further as stocks pull back into year-end.
The market could get spooked.
The bottom line: Pay attention to the tax bill. If it gets shut down, it should be bad news for the dollar and good news for gold. Plus, if another missile is launched by North Korea, gold could fly higher. That should be good news for gold stocks.
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