Gold & stock markets - what of next year? Nigel Somerville writes...

The ShareProphets 24 tips of the year for 2022 – No 14 a BUY from Peter Brailey HERE

Gold finished for Christmas above $1800, enjoying a very minor Santa rally. My view is that this recovery of $1800 is fragile in the short term, but I expect a much stronger 2022 as the grinding correction fizzles out and the US heads into mid-term elections at the end of the year. The prior week’s economic data was a mixed affair: leading economic indicators came in ahead of expectations of plus 0.9% at plus 1.1%, the GDP revision at plus 2.3% was ahead of consensus of plus 2.1% and the consumer confidence index came in at 115.8 against expectations of 111.0. On the other hand, nominal personal income was up 0.4% but monthly core inflation was 0.5% and real disposable income was MINUS 0.2%: inflation is still an issue. And with nominal consumer spending at plus 0.6% outweighing nominal personal income, it seems to me that the US consumer has resorted back to the credit card: it is more debt for them – and the US current account deficit ballooned again to $214.8 billion, against expectations of $205.5 billion and just $190.3 billion last time: debt is still an issue.

EXPOSE: Inspirit Energy Holdings – shocking accounts and bailout discounted placing ahoy. Read from The Sheriff of AIM HERE

So inflation is still raging and the US consumer and the US state is still racking up debt – and we are led to believe that the Fed is preparing to hike interest rates next year three times, which will push up the cost of servicing the ballooning debt. How do you service a debt? You pay interest – and that means less cash to spend – unless you load even more debt onto your credit card (or just print more). If the US hikes three times next year that will still only raise rates to 0.75% - to control inflation running at 5-6%. That seems a nonsense, but there is so much corporate, consumer and state debt out there that a more normal policy of hiking rates above the rate of inflation would simply crush the economy. Indeed, there are plenty of commentators out there suggesting that rates of even just 1% would tip the US into recession. My suspicion is that the US could head into recession anyway as inflation eats away income.

The ShareProphets 24 tips of the year for 2022 – No 13 a BUY from Tim Blackstone HERE

Then there is the popularity of President Biden. Or, rather, unpopularity: his approval ratings – not even one year into the job – really are scraping the barrel. According to CNN his average approval rating for December on the economy is MINUS 13% (the difference between the % of respondents approving/disapproving). I would gently suggest that the Democrats face a crisis: Kamala Harris seems to have gone AWOL and no credible alternative to Biden has yet emerged as he slips from one gaffe to another, adding fuel to the fire of those suggesting that perhaps his days of high intellect are well behind him. Meanwhile the Senate and Congress are finely balanced – and later next year we have the mid-term elections. If the voters are still turned off by Biden then, he will become a lame duck after less than two years. His current ratings as regard the economy are lower even than President Carter: he’s in trouble. So what might he do?

Wildcat Petroleum - bailout discounted placing ahoy, shares collapsing. Read HERE

With the Fed due to hike rates and the thief in the night still hard at work, there is something he can do. It will be counter-productive of course, but in the short term another stimulus cheque could be the answer. He’s budgeted for his great infrastructure bill, but that has been held up by one senator who ain’t negotiating. What better than to transform the package into more helicopter money to buy the electorate next November? You heard it here first! The official reason is easy: keep the economy going whilst the Fed tackles inflation. It is economic nonsense, of course, but I’ll bet that’s what they try. The problem is that stimulus cheques need to be paid for and the only source will be the Fed’s gargantuan printing machine. So whilst with its left hand the Fed will be hiking rates to control inflation, the right hand will be indulging in yet another round of QE (which, I bet we are told, is not QE) and the government is again splurging helicopter money everywhere – which will, of course, further stoke inflation. It is a dystopian nightmare, but what might that do to the price of Gold? Just look at 2019 for the answer! Now consider a different scenario: that the Fed hikes interest rates (seemingly) too aggressively. Corporates and consumers reign in spending to meet the higher interest-bill and the economy slows up and goes into reverse. At that point the Fed has to reverse course pronto (just as it did in 2019) by dropping rates and introducing “not” QE. We know what happened to the price of Gold then…..

ShareProphets readers tips for 2022 prize competition - Enter HERE

And as Jordan Roy-Byrne keeps pointing out, the start of a rate-hiking cycle is generally good for the price of Gold. It seems counter-intuitive, but the market tends to look around nine months ahead and right now the market sees inflation moderating – which is why US treasury yields have again been moderating. He warns that the run-up to the first rate hike usually means pressure on Gold, but once the Fed pulls the trigger, possibly as soon as March, we could well see a big change as the yellow metal heads higher. Then there is the stockmarket, which is still hanging around all-time highs. Right now, that is fuelled by pure madness but there is another reason – negative real rates. That is about to change: the market sees inflation moderating (temporarily, in my view) and the Fed is about to start hiking rates. If that is not the catalyst for a market correction (let alone a recession-inducing bear market), what about the record length of the current bull-market? Something simply has to give here and I would suggest there is the strong possibility of Gold outperforming the stock market next year, thus increasing the attractiveness of precious metals. 2021 has been a disappointment for gold bulls, but only in that the great gold bull market has been postponed. It will come, and I see 2022 as a year of preparation as Gold heads back up to its all-time high of $2070 at worst. But if the dystopian nightmare occurs, it will light the blue touch-paper. And with that, it is now time to warm a can of Christmassy sage and onion beans (no expense spared!) by the fire.

Cloudbreak Discovery – Massive Red Flag As FY Results Are Released……Or Are They? Read more from Nigel Somerville HERE

Filed under: gold, ShareProphets tips of the year, Inspirit Energy, Cloudbreak Discovery

2021-12-30 12:05:57

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