As we move through the second week of trading in 2018, this is what will trigger the big surge in gold and the mining shares.
By Bill Fleckenstein President Of Fleckenstein Capital
January 9 (King World News) – The Bank of Japan last night bought fewer bonds than the market apparently expected and JGBs were roughed up (if we can call it that), as they now yield a massive 6.1 basis points. I mention that because that dynamic had a spillover effect on the world’s bond markets and they were all weaker. The trading in bonds also appeared to have some impact on the stock market, although I say that somewhat tepidly, as stocks weren’t actually weak, they were just sort of unchanged early on…
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Over the course of the day, bulls succeeded in ignoring the bond market and driving stocks higher, as they were up about 0.3% with an hour to go, when I had to leave.
Away from stocks, the action by the BOJ saw the yen stronger, but other than that green paper was pretty much the flavor of the day. Oil gained 2% and, as noted, fixed income was heavy. It seems that a lot of pundits think that if the 10-year gets much over 2.50% (it closed around 2.54%) there will be some fireworks. Whether there will be I can’t say, but I noted it because it might turn out to be important.
Korea Kumbaya
As for the metals, they were weaker, with silver losing a percent and gold about 0.5%. I think some of the weakness in gold could have been due to the fact that tensions with North Korea have deescalated slightly following meetings between the South and the North. Not that the exact news matters. What is more important is how deep and how long the pullback in gold runs.
Obviously, gold has had a several-week streak of doing well and not declining much. Now we need to see where it digs in and what the next leg of the up move looks like. That could finally be the time when the miners really accelerate. I know I’ve been a broken record on that subject, but it is what I think and I haven’t changed my mind, so I am bound to repeat myself.
Code Brownian
Speaking of the miners, they behaved OK today, although on any given day some are perplexingly weak while others are similarly strong, and there is no real information in the movement of the individual names on a day-to-day basis that I can see, just a generalized lack of interest.
King World News note: As Fleckenstein notes, there is great opportunity in the miners in 2018. As an example, a must read article by The Northern Miner was just posted discussing one of those opportunities and you can read it by CLICKING HERE.
Included below are three questions and answers from the Q&A’s with Bill Fleckenstein.
50 Years Of Market Watching
Question: Glimmers of hope on the horizon! One of my mass market newsletters woke up to realize that in spite of all the angst on this message board last year, gold went up 15% – not shabby in most years. And, they’re recommending…….miners!
Answer from Fleck: “The miners are spring-loaded. One of these days they will play catch up to their good results.”
Miners Will Play Catch-Up
Question: Just came across this article: Paper gold trading days for London & New York numbered And this paragraph caught my eye:
“According to Claudio Grass, of Precious Metal Advisory Switzerland, the total trading volume in the London Over-the-Counter (OTC) gold market is estimated at the equivalent of 1.5 million tons of gold. Only 180,000 tons of gold have actually been mined up to today.”
I have sizable positions in GLD, PHYS, and SLV. Have been thinking about reducing my positions there and increasing physical holdings for awhile — in part based on discussions you’ve had here about the concerns/dangers of these ETFs — and this data point above is another nudge for me to take action. Do you own any of these ETFs, or is all of your exposure physical + equity in miners? Thanks.
Answer from Fleck: “I don’t own any ETFs, but I don’t think that you are at risk of them “failing.” Nevertheless, I just prefer physical to paper.”
People Are Delusional
Question: GG few weeks back was weaker than the miners. Now over the past week GG was stronger. Do you adjust your position when you see this action and if so how?
Answer from Fleck: “No, it’s too random to have any real gameplan.”
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