Don Durrett: Fear Trade Coming for Gold Right Around the Corner
Tom welcomes back Don Durrett of GoldStockData. Don discusses how sentiment remains terrible in miners and the HUI continues to underperform. Investors seem to be waiting to confirm gold’s breakout. Silver needs to reach $28.50 to confirm a new move. When we reach that level silver could run into the thirties quickly and once gold is solidly above $2000 we will likely be off to the races for the miners.
By June we’re going to have a good idea of where the economy is heading. If it doesn’t pick up and if inflation continues this will be very good for gold.
Fear and uncertainty are the number one driver of gold and we see this increasing. We saw this during 9/11 and again with the great recession of 2008. Everything has changed with MMT and now no one blinks at a trillion-dollar deficit. Wall Street still believes in the bull market and the ability of the Fed to act. They have yet to realize that everything is changing. The long-term fear trade will be back soon.
When you print money people closest to the money get the direct benefit since it slowly filters down to the public. Inflation finally began heading up last summer and supply problems are exacerbating the effect. The only good news is that money velocity is slow due to banks hoarding and not lending. Don believes inflation will be range-bound somewhere from 8 to 12 percent.
Inflation is different for everyone as it depends on lifestyle. Food inflation is moving higher along with energy which will hurt those that commute and live paycheck to paycheck. Inflation is a cause of recessions because of the lack of discretionary spending.
The Fed is copying Japan’s 1990 period model and we’re not letting the excesses in the system be cleaned out. As a result, we have a lot of zombie corporations. The Fed is caught between a debt bubble that could pop and a desire to control inflation. They can’t do both. They aren’t raising rates because a recession could blow up the financial system. As a political gesture, they will briefly raise rates and then likely lower them back to near zero. MMT requires regular injections of liquidity. All choices now are bad. All of these problems were manifesting well before the crisis in Ukraine.
China, Russia, India are going to create some sort of commodity-based currency. Last week Biden said that the United States wants to help cryptocurrencies by encouraging investment and supporting their development.
Don discusses the mining equities and why he prefers producers. The silver market is quite small so he has to limit his exposure to that sector. None of the miners are ‘safe’ so it’s important to keep allocations per miner small.
Ukraine is going to be the catalyst and we could see a transition to a commodity-backed currency. We could see huge cash flow multiples come to major commodity equities. Valuations could head off the charts.
Treasuries being liquidated by China could be the black swan as everyone else including Japan starts heading for the exits.
Time Stamp References:
0:00 – Introduction
0:39 – Miner Performance
4:43 – Breakout Levels
9:47 – Fear Trade & Physical
18:05 – Inflation & Commodities
23:40 – Inflation or Recession?
31:53 – Technology & Markets
37:38 – New Monetary System?
41:09 – Bitcoin
48:45 – Miners & Producers
58:40 – Royalty Model Risks
1:02:38 – Ukraine Thoughts
1:06:20 – West Vs. East
1:12:50 – Wrap Up
Talking Points From This Episode
- Investors are looking for gold and silver to confirm their moves.
- Fear and uncertainty are among the biggest drivers for gold.
- Inflation will continue and how the Fed is cornered.
- What happens should China, Russia, and India create some sort of commodity-backed currency.
Blog Posts: https://seekingalpha.com/author/don-durrett#regular_articles
Don Durrett received an MBA from California State University Bakersfield in 1990. He has worked in IT-related positions for 20+ years. He has been a gold investor since 1991, with a focus on Junior Mining stocks since 2004. Realizing the value of investing in gold and silver and noticing the lack of available material for first-time investors, Don set out to provide information. First, he wrote a book, How to Invest in Gold & Silver: A Complete Guide with a Focus on Mining Stocks. He followed up the book with a website (www.goldstockdata.com) to provide data, tools, and analysis for gold and silver stock investors. His gold and silver mining stock newsletter is widely regarded as one of the best. He is a frequent guest on financial podcasts and a contributor to SeekingAlpha.com.