Weekly Bulletin: The Rally of 2016—Over or Just Getting Going?

Dear Speculators,

Last week’s 4.5% retreat in gold prices hit gold stocks hard. The VanEck Vectors Gold Miners ETF (GDX) dropped about 11.5% and the VanEck Vectors Junior Gold Miners ETF (GDXJ) about 13.5%.

This share price action is normal: Resource stocks always move with high leverage to the underlying commodities.

What may seem abnormal, but has been par for the course for some years, is for the paper gold market to overreact to verbal testing of the waters by the Fed. Nothing has actually changed. Still, paper traders in New York reacted to a few hints from Fed members as though they’d dropped a hornet’s nest in their midst. We’ve seen this so many times it’s no surprise, but it still makes us shake our heads.

Remember:

And what happened when the Fed did raise interest rates, ever so timidly, last December? Mainstream markets tanked in January. Precious Metals took off for what is still one of their best years in recent memory.

So if I say I see the current correction as a buying opportunity, don’t dismiss it as me just being a perma-bull on precious metals. I’m not. I’ve been warning of the potential for near-term weakness for some time. I’ve been insisting that we take profits and go risk-free whenever we can (or put trailing stop losses on our larger, more stable positions).

The fact is that a lot can and will happen between today and the now-feared December Fed meeting. Not least among these things is the U.S. presidential election. It looks like Clinton is far ahead, with the politically correct class shocked and stunned by Trump’s utterly unsurprising vulgarity. But Clinton has skeletons in her closet aplenty, any one of which could torpedo her and hand the election to Trump. And I say again that anyone who thinks that a “tax-and-spend” career politician like Clinton is better for the economy than the unpredictable Trump is smoking something funny.

As a quick side note, I’ve been asked why I don’t endorse the Libertarian candidates. I’d love to see disgust with the mainstream options result in the best showing by Libertarian candidates ever. But I wouldn’t confuse that with the average product of U.S. public education really understanding libertarianism. And I don’t think running two washed-up Republicans will help. Libertarians could once at least say with pride that theirs was the party of principle. The Libertarian Party might not have won many elections, but it did not compromise and pander for votes. Not anymore. Yet more evidence—as if Trump and Clinton weren’t enough—that the whole electoral process is corrupt and corrupting. That said, if you’re going to vote, by all means, vote Libertarian. But I agree with Doug Casey: It’s better not to vote, as it just encourages and legitimizes the sociopaths who seek power.

Back to business. I do see the current correction as healthy. When gold or silver companies can rise 400% before they even return to profitability, you know the market has gotten ahead of itself.

And, as above, I do see this needed correction as a buying opportunity. I also think the data will show that Asian buyers of physical gold see it this way as well. It’s particularly encouraging to see strong growth in the Indian economy, even as the year-end wedding season gets underway.

In short, precious metals are down for the wrong reasons—at a time when we can expect stronger demand. I agree with Doug that this bull market is just getting going.

That makes the correction good news for those new to the game, as there are many great companies that were starting to look expensive but are now more reasonable buys. For those of us who’ve been in longer, it gives us targets for diversification with the profits we’ve taken on our many winners this year.

I’ll have more on this in next week’s edition of International Speculator. Meanwhile, use the guidance on our portfolio pages to help you set price targets and fill in your positions on the companies that have been on your wish list.

I don’t think it will be too long before you’re glad you did.

Sincerely,

Louis James
Senior Investment Strategist
Casey Research