Was This Rally Too Quick?
I have good news and I’ve got bad news. What would you like to start with?
Let’s begin with the bad news and save the best for later.
The bad news is gold needs to gather steam, before moving higher. When I say that, I don’t mean to say it needs months or even days. By the time you read this, it might already be $2,050, but what I am saying is that gold is FULLY-PRICED for the known factors that moved it to this price:
- Regional Banking Crisis.
- End of Rate Hikes.
In other words, the “bad news” is that gold can’t go up by much more, on the backs of what’s already out there. It isn’t oversold or undervalued.
Gold is now in search of a new catalyst to rally in response to.
Before I get to the good news, I want to show you the main chart that Wall Street looks at when it considers its asset allocation model.
If you’ve never seen it before, know that what’s nice about it is that it serves individual investors as much as it does professionals.
Here it is:
This is a very simple chart to follow.
It shows the premium that investors are demanding, if they are to take on the risk of owning an equity (stock), as compared to a bond (fixed-income).
When the green line is trending up, investors are getting a better deal, and when is it trending down, they are buying stocks when the alternatives might be more attractive.
When the green line is below zero, one is buying stocks on pure speculation. They offer no real-world yields.
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The BEST RETURNS come after periods of high-risk premium and today, even after the major pullback, the risk premium is low, since bond yields and other fixed-income avenues are generating 8%-12%, which makes stocks unattractive, respectively.
I want to show you the weird part about all this:
Investors are definitely moving away from risk in a manner that looks far more like bear markets do, not bull ones.
It is my view that Big-Tech is going to be able to get back on its feet, but the Silicon Valley era is done for now.
Everyone wants REAL VALUE, present profits, not grandiose promises of companies that will one day change the world.
Risk appetite is low to non-existent and I think that will begin to change only after the FED cuts.
Now, for the good news:
Gold is in a clear bullish move.
Yes, it will pull back, but the overall trajectory is up.
The next catalysts for gold are rate cuts, more shadow banking madness and signs of recession.
What’s even more encouraging and very clear is that the bearish forces of hawkish FED policies are out the window.
I continue to think the bearish consolidation channel has ended and the bulls are in full control.
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