- The mainstream’s depressing gold vibe in 2022
- Jim Rickards defies precious metals consensus
- Interest rates: Nowhere to go but up
- Bitcoin holds the line
- One tech subsector evades tech’s thrashing
- Readers on the absurdity of “Bividends”… The Five’s politically transparent (whatevs)… And more!
Whelp, it’s not hard to suss out the mainstream vibe about gold here in early 2022…
Gold ended 2021 on a rally past $1,830 — a rally we suspected wouldn’t stick. Sure enough, this morning the Midas metal sits at $1,794.
With that as the backdrop, macro maven Jim Rickards joins us to continue our team’s 2022 predictions.
In contrast with the mainstream, Jim says gold will reclaim its 2020 record highs near $2,070 this year.
So far during the pandemic era, only one factor has consistently moved gold prices up and down — interest rates. Lower rates translate to higher gold prices, and vice versa.
Gold’s all-time high of $2,068 dates to August 2020 — not coincidentally, within days of the yield on a 10-year Treasury note notching an all-time low of 0.51%. “Faced with a stronger economy, rising interest rates and rising stock prices, gold prices fell off quickly,” Jim reminds us.
We won’t recount the entire history of gold and interest rates since then. “Suffice to say that gold has traded in a range of $1,700 per ounce on the low side and $1,900 per ounce on the high side with a central tendency of $1,800 per ounce” — right about where we are now, as a matter of fact.
In the mainstream telling, interest rates have nowhere to go but up now — which would bode ill for gold. Jim is happy to take the other side of that trade.
As we write this morning, the yield on a 10-year T-note is approaching 1.8% — challenging pre-pandemic levels of early 2020.
Only four weeks ago, the yield was still 1.4%. In the bond market, that’s a huge move in a short amount of time — an earthquake, really.
Since bond prices fall as yields rise, we see headlines like “Sleepless Bond Traders Face Worst Start to a Year in Decades” (Bloomberg). Last week, depending on how you measure it, 10- and 30-year Treasuries turned in their worst week in over 40 years.
As we mentioned last week, the Federal Reserve appears determined to “tighten” policy starting in March — ending its purchases of bonds (including Treasuries) and raising short-term interest rates, the rates under its control. Thus longer-term rates are shooting higher.
For now.
“It’s true that rates have risen over the past few days, but that’s one of many rate rallies that have occurred over the past nine months,” Jim points out.
That 10-year T-note? “Rates hit 1.702% on Oct. 21, 1.667% on Nov. 24 and are at 1.798% today.”
Until proven otherwise — a decisive breakout to levels of 2% or higher — Jim still sees “the inability of rates to break out to the upside, and an overall downtrend.
“Rates have likely peaked for this cycle. That means lower rates ahead, and higher gold prices based on the strong correlation between rates and gold.”
But in addition to range-bound interest rates, Jim sees another factor supporting gold in 2022 — “continued strong gold buying from central banks.”
That includes “Russia, China, Iran, Poland, India and some central Asian nations.”
Which brings us to a dispatch filed by Japan’s Nikkei financial news service on Dec. 31: “Central banks around the world are increasing the gold they hold in foreign exchange reserves, bringing the total to a 31-year high in 2021.”
That’s 36,000 tons, according to the World Gold Council.
Interesting, the crazy-high percentage in Kazakhstan, given the turmoil going on over there right now. (Perhaps we’ll explore that in some more depth as the week goes on.)
Asked last fall why Poland is so keen to build up its reserves, National Bank of Poland president Adam Glapiński said it was simple: Gold isn’t linked to any one nation’s economy and it can withstand global unrest in financial markets.
In any event, “It’s not unusual for gold to take a breather between major moves,” says Jim.
“The rally from Dec. 16, 2015, to Aug. 6, 2020, was a 97% gain in gold prices in 56 months. Gold fell from the peak of that rally and has been consolidating around $1,800 per ounce for the past 17 months. Another 97% rally would take gold to $3,550 per ounce.
“The first leg of that rally would put gold at $2,070 per ounce later this year.”
So there you go — a near-$300 gain from present levels.
A decent-sized gold stash isn’t the only protective measure Jim recommends in a turbulent 2022, by the way. Check out his up-to-the-minute blueprint right here.
Did we just say a turbulent 2022? That’s certainly how the new week is shaping up for the U.S. stock market — with all the major averages down at least 1% at last check.
No, there’s no obvious reason: “Inflation, Rates, Virus Stir Alarm” says Bloomberg. As if those factors haven’t been in play for weeks, or somehow they weren’t in play a week ago today when the S&P 500 hit an all-time high.
In any event, the Dow is holding up best — but has still cracked below 36,000. The S&P 500 is 17 points away from breaking below 4,600… while the Nasdaq Composite is sinking further and further below the 15,000 level. Indeed the Nasdaq is now in “correction” territory, down 10% from its most recent peak.
Volatility as measured by the VIX is up 17% today at 21.94. That said, the VIX remains below levels of just three weeks ago when “inflation, rates, virus” were also “stirring alarm.”
As noted earlier, gold is mired below $1,800. Silver is likewise little moved on the day at $22.40.
Bitcoin did an impressive job of holding the line on chart support over the weekend. At last check, it’s still hanging tough at $41,631. Ethereum is struggling, though — below $3,100 now.
On Twitter, Sundial Capital founder Jason Goepfert points to a “Crypto Fear & Greed Index” that shows fear running rampant right now — thus, the present low levels on this chart going back the past year.
Note well: Whenever this index reaches levels this low, Bitcoin turns into the best performer among leading cryptocurrencies over the following month. “It rallied 80% of the time,” Goepfert says, “averaging an 11% gain.”
Which lines right up with what we said on Friday: The crypto market has handed you a buy-the-dip gift. We’ll pound the table one more time for the much-in-demand Big Book of Crypto, compiled by our own James Altucher and Chris Campbell. It’s the crypto beginner’s ultimate kick-start guide.
Of course, we have an infinite number of digital copies ready for immediate download, but the first run of hold-in-your-hand books is going fast. Follow this link to grab yours right away.
While technology’s been getting hammered of late, there’s one tech subsector holding up much better — semiconductors.
“Tech stocks are getting pummeled as big institutional investors move money out of speculative areas of the market,” says our Zach Scheidt. “Growth companies that only make small profits (or, worse, generate losses) are very hard to justify when interest rates rise.
“That’s because these institutional investors have better options for making profits when interest rates are higher. And when these investors start selling certain companies, the stock prices can drop quickly!”
But the semis are a different story: “Since so much of our world is now tied to technology, strong demand for the computer chips this industry makes is a great sign that the overall economy is healthy.”
Case in point: Late last week, the Korean behemoth Samsung forecast a 52% rise in quarterly operating profit — largely on the back of its chip business.
“And since semiconductor stocks didn’t sell off sharply along with the rest of tech stocks,” says Zach, “they’re more likely to rally to new highs when the sell-off is done.”
Easy way to play it — the VanEck Semiconductor ETF (SMH). “The group should continue to do well, especially once the sellers run out of shares and buyers step back into the market.”
Still, one chip giant is at a crossroads of sorts.
Nvidia leaped 148% between January and mid-November 2021. Indeed it was one of just five stocks that together accounted for a third of the S&P 500’s annual gain.
“The driver behind Nvidia’s gains has been the company’s dominance in the graphics processing space,” says our tech specialist Ray Blanco — “with its bread-and-butter business of supplying gaming computers with ever more powerful GPUs.
“By the middle of the 2010s, the market began to notice that Nvidia’s GPU tech could be a lot more useful than just enabling realistic games. The basic technology behind the company’s chips could also be leveraged for high-performance computing and AI applications, including autonomous-driving tech.
“Flash-forward from the mid-2010s to last year and Nvidia is a company that is becoming dominant in the data center, not just gaming consoles. Moreover, 2021 was the year that the term ‘metaverse’ started entering the public space, including investor consciousness. With Facebook renaming itself Meta Platforms, it seems like all Big Tech is staking a claim on the next version of the web.
“The potential for this not yet fully defined future phenomenon includes, at its heart, the creation of 3D virtual worlds where we will interact with each other and with AI avatars. It supplies yet another long-term bull case for Nvidia shares, as the company’s technology is certain to be at the heart of the metaverse.”
But for the moment — with NVDA languishing about 20% below its November peak — Ray has recommended his Technology Profits Confidential readers unload half of their Nvidia shares — for a fat 320% gain. Ray has successfully guided his readers in and out of NVDA for a decade now with well-chosen entry and exit points.
Meanwhile, for the tech name Ray believes is best poised to rocket higher in 2022, give this a look.
To the mailbag: “I was reading your item about BTCS and its ‘Bividend,’ and you’re right, that is truly absurd to pay a dividend in Bitcoin.
“Then, as someone who tends to short stocks, it got me thinking… Normally if I short a stock and it happens to pay a dividend, as someone who is short I must pay the dividend rather than receive it. So in this case, how would one pay the ‘Bividend’ if they are short and not a crypto person?
“I’m assuming they would just take the 0.05 per share and be done with it. But wondering if they’d still allow you opt into their transfer agent program if you wanted to pay the dividend in Bitcoin as foolish as this whole thing is. I’m guessing the BTCS transfer agents wouldn’t look fondly upon that.
“Hmm, so many questions.”
“Guess on the anniversary of the Jan. 6 insurrection, when the country should be mourning the attack on democracy, you just couldn’t help from slipping in your own version of a conspiracy theory that the government concocted the plan to rush the Capitol.
“What a sore loser! Just because your boy, Trump, didn’t win, doesn’t give you the right to spread that made-up garbage. When Hillary Clinton surprisingly stunned the country by losing to Mr. Trump, no one tried to make up Stop the Steal, or conspiracy theories to explain it. She conceded immediately. She lost, end of story. Why can’t you Republicans do the same?
“The Dems cried about it for four years, but in the end, the democracy was more important to them than any Democrat. What has changed? For a newsletter that claims neutrality, you sure are easy to see through!”
The 5: You’re just trolling now, right, sir?
We believe, as someone other than Mark Twain or Emma Goldman once said, that if voting changed anything, they’d make it illegal.
We defy you to go through our voluminous archives and find anything to suggest we believed Trump had the 2020 election stolen from him. On the contrary, we threw shade on the likes of Sidney Powell more than once — and we likened their antics to the equally madcap (and very real) effort backed by Hillary Clinton’s forces in 2016 to peel off Trump electors in the Electoral College.
The reality is — much to the consternation of Trumpers — we were never in the Trump camp. We couldn’t get behind tax cuts that weren’t offset with spending cuts. We couldn’t abide his 17th-century approach to trade. He talked “America First” but surrounded himself with warmongers like Mike Pompeo. And upon leaving office, with presumably nothing to lose, he passed on the chance to pardon Julian Assange.
Meanwhile, why do you find the possibility of federal involvement in Jan. 6 so implausible? Leaving aside the Revolver reportage, we know from The New York Times — not exactly a Trump-friendly outlet — that the FBI had at least two informants on the ground and was communicating with them as the protest was underway.
We also know the alleged plot to kidnap the governor here in Michigan during 2020 was riddled with feds — and here too, that’s based on the reporting of a not-right-wing outlet, BuzzFeed.
Nor do the feds engineer their plots against only the right: Again according to the NYT, the FBI infiltrated an antifa-type march in Portland, Oregon, a year ago, not unlike the COINTELPRO operations of the 1960s.
Sorry, life is more complex than red-state, blue-state tribalism. More interesting, too. Sorry if you can’t deal with that.
Best regards,
Dave Gonigam
The 5 Min. Forecast
