New Year, Same Problems: Lockdowns, Stimulus and the Future of Gold

New Year, Same Problems: Lockdowns, Stimulus and the Future of Gold

Dear Reader,

It appears 2021 picks up right where 2020 left off.

That’s not surprising though, is it?

Just because the Gregorian calendar flicked over into a new year doesn’t mean our woes would leave us.

Instead of stock market chaos this year, I suspect many investors are now hardened by battle and ready for the unexpected.

Though this year should come with a warning.

While 2020 was full of unprecedented, extraordinary and unparalleled experiences, the ‘solutions’ to mitigate these events are slowly being undone. In other words, the outcome of our actions has yet to impact us.

And that’s what this year is going to be about: facing the consequences of our actions.

Gold bulls steady the mob

First things first, let’s tackle my favourite topic: gold and what it’ll do next.

In the very early days of January the yellow metal started the year with a strong rally. Touching to US$1,950 on 5 Jan.

A contact of mine whose alias we’re still working on (he suggested Deep Gold, but then we realised the younger readers might have no clue what sort of word play that is) and I were chatting about this as the precious metal started the year with a bang.

And I’ll tell you what I told him. I don’t believe in any rally or sell-off in the early trading days of the year. It’s rarely backed by fundamentals. It’s more often opportunistic trading.

By the next morning, gold sold off and was back down trading around the US$1,840…

Wait, does that mean the gold rally is done for?

Not on your nelly. But I still think gold has a few more down days to go through just yet.

Yep — I say that even as the gold price rallied hard as Americans swore in a new boss last night.

Don’t get me wrong, I reckon the worst of gold falls are over. Buying gold below US$1,800 is done and dusted. For good.

However, the yellow metal isn’t ready to stretch out its legs just yet.

Which might sound odd, because President Joe Biden has announced a new US$1.9 trillion stimulus package to fire up the US economy. It won’t work, but that won’t stop him trying.

You may think that this should cause the gold price to sky rocket. And while printing fresh money is good for the gold price in the long term, announcing the stimulus isn’t enough to drive the price higher.

The closer the stimulus gets to being confirmed, then we’ll see a stronger uptick in the gold price.

In other words, it’s a buy the rumour sell the news type of scenario. Until the market knows the stimulus is coming, it’s just political wishes and media sound bites.

Will it go through? Perhaps not as is. Rumour has it the package will meet resistance in the US Senate so it may take longer to be approved…

Of course, this delay in a gold rally is good news for you.

While the yellow metal struggles to move higher, it means you can pick up the physical stuff for less. Compound that with the Aussie dollar flying and gold in buckaroos is looking down right cheap.

The current set up isn’t great for gold miners, but the double whammy of a falling US gold price and the strong Aussie dollar presents a rare opportunity for Aussie investors to get gold on the cheap.

Oh, and my forecast for this year?

At my peril, I said in a company-wide meeting at the end of last year the days of picking up gold under US$2,000 per ounce are numbered. I hear you, that sounds crazy when the yellow metal is a hundred bucks away from that and falling…

But central banks and governments aren’t done fiddling with monetary and fiscal policy. There’s a few more twists and turns ahead for us yet. And gold will start reacting to that much sooner than you realise.

You’ve probably got until April — May at the latest — to pick up gold under US$2,000.

This is your buy the dip moment.

The impact of lockdowns is still to come

And now our chickens come home to roost.

I’m referring to how our government handled the pandemic. International borders shut. Lockdowns. Some cities had it harder than others. Melbourne virtually stopped trade for a few months.

Was that the right thing to do? Sure, the COVID case numbers are low. But what was the cost?

Then there’s the Christmas craziness of state premiers ‘closing’ suburbs. West Australia banning pretty much everyone in the east. The Victorian government telling people on interstate holidays they can’t come home or they’ll have to stay inside for a couple of weeks.

Frankly, it was utter madness.

More to the point, this stop-start-open-close impact wreaks havoc on business and individual plans.

On the surface it looks like we are protecting people. But it causes untold financial destruction to businesses. Which also has long-term health consequences as well.

Jim Rickards told me over an email a couple of weeks ago that, it’s the long-term health consequences of lockdowns that may be the real legacy of the pandemic.

This is a point he is keen to make in his latest book The New Great Depression. I was fortunate enough to receive a copy from Jim over the Christmas break, and I’ve barely been able to put it down.

There’re several key things from Jim which I’ll go into in coming weeks. Perhaps the one that hit the hardest, isn’t just the short-term damage the lockdown impact had. Rather it’s the long-term economic destruction that is still to play out.

It’s not just a few restaurants that have closed in the US. That’s the immediate visible impact. The secondary — or ancillary jobs as Jim calls it — are still to go. They’re the laundries, the fisheries, local farmers, furniture suppliers and handy men that support these industries. These are the next jobs to go.

That, of course, he says, is followed up by the real estate agents, the car sales people, architects and interior designers for example. You don’t need real estate agents if the landlord goes broke. People can’t afford to buy new cars if they aren’t working. And no one is going to renovate a shop front or business either…

The entire service industry is nothing more than synchronised moving parts. All of which is yet to be hit…

It’s no longer what’s happened. It’s about understanding what’s to come.

Stay tuned for next week and we’ll show you how to get your hands on the book.


Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia

PS: Why Australia is set to become the next ‘gold epicentre’ — which could result in a HUGE spike in Aussie gold stock prices. Click here to learn more.