January 2017 Newsletter Setting The Record Straight
On Tuesday, November 8th, 2016 our country believed enough in the ideals of Donald Trump that he won the electoral vote and became President Elect Donald Trump. The markets reacted in the short term, similar to the Alan Greenspan coined the phrase, “irrational exuberance”. Pushing the dollar aggressively higher and raising the 10-year note rate, resulting in stocks moving beyond the economic and fundamental levels. Gold adjusted down as a result of this. All because of the ideology that soon to be President Trump will make America Great and fix all. I said this environment will not last.
On a side note, before you turn me off in your mind, let me clearly say once again, I am a Trump supporter. In fact when there were 16 candidates running for the Republican ticket, at that time, I was a Trump supporter. Let me also balance this out by writing, as I have said also verbally many times, that I don’t care for Trumps style of demeaning people, and saying outlandish things either verbally or through twitter. Trump’s inability for the most part of him being non-Presidential does not help him gain respect and support from his existing base supporters, let alone those with opposing views. President Trump will be who he is in his method of delivery, which is non-traditional.
Back to our topic…the market recently in late December started showing signs of a massive slowdown in the Dows upward movement. The Dow breaking the barrier of 20,000 points has made historic news. Breaking this psychological barrier has happened due to two factors. Corporate earnings showing hopeful signs due to the fourth quarter earnings coming out. In addition to this, President Trump’s economic plans of renegotiating trade deals, lowering the corporate tax rate, and repealing Obamacare to lower health care cost, has brought the market hopeful economic gasoline to fuel the markets. Time will tell if President Trump’s plans will pass with a congressional vote to be implemented in a timely manner. This is a very tall task which eventually will show signs that could dismantle the market. As a side note, corporate stock buy-backs are at a historic high which falsifies real stock values too.
Understanding Gold and its value
With the pull-back in gold recently to $1.122, it has caused all kinds of crazy opinions and predictions about gold coming out from the financial world. I find it ironic when gold pulls back (as all markets do) people go on the financial news and give misleading information about the yellow metal. These people have never bought or sold gold and certainly, have never owned a precious metals company. They start bellowing their opinions of trying to sway the public that gold is now going to be crushed. I heard recently gold is going to $900 while another person says it will go to $700, while another person says it will retrace back to its pre-bull market lows of under $300. While others on the other side say gold is going to $1,600 or beyond $2,000 this year. One person said recently gold is going to $5,000 in the near future. Both sides, in my opinion, are wrong and show extreme views and historically those that say these types of incredible large market swings, either to the upside or downside, be it gold or stock have with almost certainly been proven wrong. Gold is currently trading as of this writing at $1,185! The ones that tell you to stay away from gold or even sell your gold are misled. Currently, the mining cost of gold (how much it cost to mine an ounce of gold out of the ground and process it) according to the World Council is $1050 to $1410 an ounce. Think with me for a moment, if you owned a gold mining operation would you mine gold at a guaranteed loss? Neither does or would the gold mines! Therefore, if gold goes below the average mining cost, wouldn’t gold production diminish greatly or even stop? This is a simple economics, supply vs demand and production cost that you can answer without even owning a gold company. Prior to 2000, the average mining cost of gold was under $300. After 2001 gold production increased because Central Banks started aggressively buying gold because of increased government spending during a low-interest environment, Central Banks diversified out of Dollars into gold. In the aftermath of 2008 until 2015 (the last World Gold Council report) Centrals Banks have bought more gold substantially than all of the previous years combined. They were forced to protect their dollars because The Federal Reserve created $4 Trillion out of thin air called Quantitative Easing. In 2012 the intense buying stripped away the supply where now demand is so great production can’t suffice. This is one simple reason gold over time will continue to rise.
Since there are so many changes happening in our country there is so much to write about also. I am putting the final touches on our February newsletter which continues with this topic but you will see we will go much more in depth on upcoming government spending that will balloon and a possible shut down in our government in March. This is already being talked about in small parts of mainstream news. I will also give a historical comparison also of a period of time we had a Bull market in Gold while also having a Bull market in stocks, during the same time our country’s debt expanded to an unmanageable level, which is where we are currently at. Look for that in the first week of February.
In 23 years of being in the financial industry, I have seen this environment many times. I have good people with good intentions where they have felt the need to diversify into gold and or silver in this type of environment when there has been a correction in gold and we are within the mining cost of gold. I have seen them contact their broker or financial planner or listen to the misinformed news about gold collapsing, only to wake later waiting to buy gold at a higher price. The perfect time to buy gold is:
-When it is within the mining cost of gold.
-When our government is going to spend.
-When the Debt Ceiling is coming up
-When the stock market has beyond the normal historical timeline of a correction happening every 7-8 years.
Very seldom do you have two or more of these strong indicators currently we have all four. This is why I am now giving the strongest buy signal in gold that I have ever given in the last 4 years. If this resonates with you then you should contact one of my representatives and get properly educated with a packet and a consultation to answer all your questions and to see what might be best for you!