The Age of Repression

In addition to bringing you The Rum Rebellion each and every Thursday, I also write a few subscriber-only publications.

One is called Greg Canavan’s Investment Advisory, a stock-picking service, and the other is The Insider, where I write market commentary for ALL subscribers (it comes free with any subscription) twice a week.

For what you get, I humbly submit the service is as cheap as chips.

I say this because in Monday’s Insider, I alerted readers to the imminent opportunity brewing in the gold market:

One sector that seems particularly well-placed here is gold. The gold price responded very well to the Fed last week. It looks to be on the verge of breaking out of its near 18-month consolidation period.

As you can see in the chart below, gold has spent the past few weeks trading above the downward sloping trend line. It looks like it is building pressure for a potential strong move higher.

Gold Price Outlook

Source: Optuma

[Click to open in a new window]

The chart shows the gold futures market had closed at US$1,816 an ounce on Friday.

Overnight, the price surged as high as US$1,867, before settling lower to around US$1,850 at the time of writing.

It’s increasingly likely the breakout has occurred. Over the next 6–12 months, in my humble opinion, you’re likely to see gold prices trade at new all-time highs.

I followed that up on Tuesday with a note to my Advisory subscribers, telling them:

The most important money-making opportunity brewing in markets right now is in the gold sector.

The thing is, in contrast to just about every other sector in the market, gold stocks have been trending down for the past 12–18 months.

The market is pricing in LOWER, not HIGHER gold prices.

HOODWINKED! Why Australia’s ‘miracle’ economy is a farce

At least it was. But that is starting to change.

As you can see in the chart below, the ASX Gold Index dropped sharply below support in September. But it quickly reversed that sell-off (a bullish sign) and is now moving higher. The index is now at its highest level since August.

In my view, I think gold stocks are at the start of a new upward trend. It’s early days. But that’s how it looks to me.

Gold Price Outlook

Source: Optuma

[Click to open in a new window]

So what’s behind this gold price breakout?

Negative REAL interest rates. Real interest rates refer to the nominal rate minus inflation. As inflation picks up, and nominal rates don’t move meaningfully higher, real rates decline.

And that is bullish for gold.

The weird thing is, real rates have been bullish for gold for some time. It’s just that the market thought this ‘recovery’ would see a move higher in real rates. That happened to a certain extent. But for most of the year, longer-term real yields have been on the decline.

For example, check out the chart below. It shows real yields on the 30-year US treasury bond falling to ALL-TIME LOWS!

The Yield on 30 Year Inflation

Source: Rosenburg Research

[Click to open in a new window]

That is, they are now more deeply negative than they were when gold peaked back in August 2020.

So the fundamentals are set for gold. Now it’s just a matter of the ‘emotion’ of the market getting behind the yellow metal.

The other thing to think about here is the longer-term impact of the rise in short-term interest rates.

With inflationary pressures picking up around the world, central banks are now planning on removing the extraordinary stimulus they provided post-pandemic.

The result has been an increase in shorter-term interest rates. By that I mean rising yields across the two-to-five-year bonds.

However, the market is saying that this tightening will cause the economy to slow. That makes sense in a world saturated with debt.

The chart below shows the long-term Treasury yield curve. It’s the five-year yield minus the 30-year yield. The decline reflects rising five-year yields and flat or falling 30-year yields:

Treasury Curve

Source: Rosenburg Research

[Click to open in a new window]

In other words, shorter-term bonds are very concerned about rising inflation, while longer-term bond holders see the global economy in a debt trap, and are not concerned about inflation long term.

Whatever the outcome of inflation, whether it’s ‘transitory’ or sustainable, you can bet that governments and central banks will work together to hold rates below the rate of inflation.

We are entering a long period of financial repression.

Gold will be the ultimate winner…


Greg Canavan Signature

Greg Canavan,
Editor, The Rum Rebellion

PS: The Rum Rebellion is a fantastic place to start your investment journey. We talk about the big trends driving the Australian Economy. Learn all about it here.

Greg Canavan approaches the investment world with an ‘ignorance is bliss’ philosophy. In a world where all the information is just a click away at all times, Greg believes we ingest too much of it. As a result, we forget how to think for ourselves, and let other people’s thoughts cloud our own.

Or worse, we only seek out the voices who are confirming our biases and narrowminded views of the truth. Either situation is not ideal. With regards to investing, this makes us follow the masses rather than our own gut instincts.

At The Rum Rebellion, fake news and unethical political persuasion are not in the least bit tolerated. It denounces the heavy amount of government influence which the public accommodates.

Greg will help The Rum Rebellion readers block out all the nonsense and encourage personal responsibility…both in the financial and political world.

Learn more about Greg Canavan's Investment Advisory Service.

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