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October 30, 2018 | Golden Idols, and Losing Faith in the Fed

Sean Brodrick

Sean is the natural resource analyst for Weiss Group. You can read his thoughts on gold, oil, cannabis, uranium and other natural resources at EdelsonInstitute.com

Hello from Sarasota. I’m here because my mother, Tess, just had knee replacement surgery and she’s stuck in rehab for a while. It’s always a pleasure to visit Mom, and now she can’t run away from me. Ha!

Anyway, though I’m on the road, I am still watching the markets. And you know how I’ve pounded the table recently about how the Fed will have to stop raising rates sooner rather than later.

Well, over the weekend, someone with a lot of heft in this market started agreeing with me …

The U.S. Federal Reserve has hiked interest rates relentlessly since 2016. This has pushed up the U.S. dollar, and weighed on gold. But is that going to continue? I can tell you right now, bond traders are losing faith in the Fed, big-time.

And that means a profit opportunity if you want to get ahead of the curve …

First, here’s a chart showing how the Fed has hiked rates.


That’s a pretty steep rate-hike schedule. And the Fed had more in mind. Until recently, the Fed was telegraphing another rate hike in December (to make three this year) and three more next year.

The key word there is “recently.”

Let’s look at what bond traders are anticipating now …


Looking at the chart, you can see that traders cut bets on rate hikes in 2019 at the end of last week. Markets are now factoring in fewer than two quarter-point hikes for next year. Compare that to the three rate hikes that policymakers project.

Sure, part of this is the carnage in the markets last week. But that’s only a small part of the picture. We can also add in that the housing market is tanking.

Last week, the Census Bureau reported new home sales fell for the fourth-straight month in September. In fact, they hit the lowest point in almost two years. The median sales price was also down from one year ago.

That’s bad for the whole economy, because home sales have a ripple effect. They drive sales of washing machines, kitchen appliances and other large consumer goods. Americans also tend to spend more when home prices are appreciating.

Now, there is no guarantee that the Fed will indicate it will take a pause on rate hikes, or that it will do that sooner rather than later.

But you know what’s going to take off when it does, right? I’ll spot you the “G” — you can guess the other three letters.

Silver will do well, too. And the stocks that are leveraged to these metals have zoom-zoom potential.

I’m recommending gold miners to my Supercycle Investor subscribers one after another. I just sent my Wealth Supercycle subscribers another precious metals pick on Friday. If you’re doing on this on your own, please be careful. And if you are willing to accept lower rewards to lower your risk, you can just buy the VanEck Vectors Gold Miners ETF (NYSE: GDX). It looks quite tasty right now.

Well, it’s time to visit Mom again. I just brought her a Carl Hiaasen novel, Razor Girl, yesterday, but she’s a voracious reader. I’ll get her thumbs up or down on the book and hand her a new one. I need to find one about a crime-fighting grandmother who solves mysteries in a rehab facility. That’s the ticket!

And thinking of Mom reminds me that while I do like gold a lot, there’s something much more important: Your health. And family, too. All our golden idols pale in comparison to those two.

I hope you have both good health and family, my friends. You might need them in the wild days ahead, if the Fed ignores the warning signs that the market is flashing at it desperately.

All the best,
Sean

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October 30th, 2018

Posted In: The Edelson Institute

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