Gold Will Climb a Wall of Worry the Fed Can't Fix


Via Soren K. Group in Chicago

The expression "Bull markets climb a wall of worry" is used traditionally to say that it goes up because people are too worried to commit. By "worrying" the rally won't continue, they stay uninvested. This keeps the market from getting frothy as non believers stay out due to heir own negative emotions. 

View the pic below  like a "cryer's excuse" towel. 


There certainly is some of that. Legitimately asked questions center around "is this another hot money short term thing?". There is always that healthy doubt. But this market is rallying because of, not in spite of worry.

The irony here is that it is the worry that is driving this market higher.

But not the sort of weak-kneed bulls fearing the sell off. It is the worry that our nation is on the precipice of a deeper crisis than it is already experiencing.

And that worry will not go away overnight.



-impeach and the worry is daily and painful.

-dont impeach but threaten to and the cancer is more chronic as people's faith stagnates.

This is all separate from the inflationary drivers already baked in.


Do you think the Fee will raise rates in June? Yesterdays stock sell off

caused the chances of a hike in June went from 100% to almost 80%.

That, friends is a 20% drop in a day. Do you think it will go back up? We do not.

World Interest Rate Probability data provided by Bloomberg shows an 82.5% chance the Fed hikes in June. That's down from 100% less than one week ago.

Even though a rate ease in uncertain times will not help buoy the market, a hike will do double damage.

To be fair, a rate hike is supportive for the USD. But that works in a vacuum.

Rising long rates are also a reaction to mistrust in a country's path.

At what rate would you buy Zimbabwe dollars? Or Venezuelan paper? Currency is at its core a reflection on global trust. It is a nations stock price. 

So the growing global mistrust of the US political system is a reason to raise rates. It is also a tell of more hikes to be done. 

So sure, rates can be raised in June. But that would mean the government cares more about the country than the stock market. We do not think they can see past their own 401k's.

To put a less sardonic twist on it: the USD is down, and bonds are up with stocks off their ATH. They should raise rates. But they will be less inclined until the long bond starts to sell off. That is the "safe haven" still. Go figure.

 Bond safety is an illusion. People buy a 2% asset because it is liquid, not because it is safe.

Gold is also viewed as a safe haven. But gold is not liquid for hot money. MINERS

Frankly, we are a bit overwhelmed and are trying to figure out as traders if miners are a buy right now. The market sell off unfairly held them back. But as we all know, it takes years of ever fundamentals matter for stock prices. On our radar are financing, operating leverage, hedge programs, and the broader market's effect in context.

It is rare that the metal outperforms the miners. And that usually makes for an arbitrage for traders or a value "buy" level for investors in mines.

But the driver of the Gold rally is not typical. Note it is US political uncertainty driving it. That is a huge difference from the past. And it unites the 2 major drivers in one event:

1- political uncertainty

2- dollar correlation

We now seeing more  overseas allocations based on US political uncertainty that is the driver of dollar selling . 

So, are miners a buy now if the dally and uncertainty persists?

We are not sure if they are as traders. We are sure they are as investors. Just don't think you'll see true valuations until the dust settles. Panic stock sellers are going to continue to infairly punish miners. Every time here is a news hiccup, all stocks are sold.

this makes for investment opportunity. But it doesn't necessarily mean you can get "justice" in a fortnight!

While we look closer, here's some quick analysis by trusted colleague and respected market analyst George Gero.


Good. Luck - .


Gero's Quick Take:

Gold may keep the rally going as worriers and asset allocators support prices near 1260 area.However FED meeting in June, Option expiration may get some profit taking,

Many reasons for this rally of two week highs,as gold acted like the haven for sell off in stocks,haven for political upheaval in Washington, haven for N.Korea saber rattling,and haven for lack of yield in competing treasuries.

Open interest tells compelling story,today 450633,up from a week ago 427628, options up to 1,142,691 up from May 1 at 993716, so option expiration May 25 Thursday

May have good volatiltiy next day if options in the money become futures next day.Copper250,978not helped by weakness in dollar,worries about infrastructure spending arise,and silver at 214353, catching little of the larger gold move.

A.George Gero

RBC Wealth Management

Managing Director –senior consulting group- Financial Advisor


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