Too Much is Priced In

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In my favorite book of all time, a little work titled The Greatest Thing in the World by Henry Drummond, written in 1891, the author talks about the characteristics of the ideal human being. Out of the chief nine traits that comprise this individual and his relentless pursuit of improving upon them, he names ‘Sincerity’ and clarifies what the optimal mind defines as being sincere.

He explains that the sincere mind does not celebrate being right, but celebrates uncovering the truth.

There’s a profound difference between the two and I think it’s worth diving into for a minute, because this has not only philosophical and spiritual connotations, but also real-world financial observations and consequences.

Warren Buffett’s quote that the market doesn’t know you are LONG the stock is essentially the same as Drummond’s explanation of pure sincerity, which he boils down to being satisfied and content with finding out the truth, instead of patting yourself on the back when you’re right, and blaming the world when you’re not {as opposed to accepting it with a sigh of relief that now you finally have a grasp on reality}.

Those who oppose reckless fiscal and monetary policies and loose lending standards equate these with the bullish case for gold and think that its price should be far higher, not to mention silver’s.

With the debt ceiling approaching the X-date, which is now June 5^th (the day Treasury runs out of money), and with recession probabilities at multi-decade highs, along with persistently-elevated inflation, they can smell gold’s record price coming in short order.

Courtesy: Zerohedge.com

As you can see, the mood on the street is certainly pessimistic. Gold has been rallying big over the regional banking crisis, which prompted speculation that the contagion would not be limited to just a few institutions, but for now, some 4,000 banks in America are, indeed, chugging along just fine.

If the regional banking crisis turns out to be manageable and the debt ceiling is raised, those are two catalysts that not only disappear, but also raise the odds that the FED might sneak in another rate hike in June.

My point is that the crowded trade of LONG gold/SHORT dollar looks to be at a premium.

I’m happy to be wrong, but the price action shows that my warning from last week is turning out to be true:

Courtesy: Zerohedge.com, Bloomberg

I am a gold bull and I do believe that gold will reach all-time highs in the months ahead, but I’m not placing much faith in that happening before the FED finally caves to pressures and cuts rates.

As it stands, when I look at the CME FedWatch Tool, I see not only that bonds futures leave the door open to a June rate hike, but also that in December 2023, interest rates will still be over 5.00%, where they are at present.

It seems like the world is coming to terms with inflation staying put and the need to tighten the belt on expenses. Everyone seems to be on board, except for the government, and that’s why I believe the next U.S. election campaign will be about spending responsibilities, and that is a major change.

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Best Regards,

Lior Gantz
President, WealthResearchGroup.com