Jan. 12, 2023
Investors searching for that elusive bright spot as we start off 2023 should stop what they’re doing and take a close look at gold’s recent price performance.
The yellow metal has been gaining steadily in recent months with gold futures now at an 8-month high of ~$1,875 per ounce — an increase of 15% since early-November.
It’s the type of bullish-looking gold chart gold enthusiasts have been eagerly awaiting… yet the timing of its arrival is not at all a surprise.
You see, investors tend to flock to assets that offer predictable returns — such as government bonds — in high interest rate environments such as what we had for pretty much all of 2022.
It makes sense, right, since gold does not pay its holders any form of interest. And you can readily see the yellow metal’s lackluster performance from March-October 2022 as interest rates were going up in record fashion.
Yet, for the forward-looking contrarians among us, a seachange is indeed coming in the form of lower rates — and you can see that reflected in the right-hand side of our 12-month gold chart above.
Of course, the Fed would have you believe otherwise as it is hell bent on raising rates until it gets inflation under control.
Powell & Co. raised the federal funds rate seven times in 2022, including four consecutive 75-basis-point increases. Before that, the Fed hadn’t had a single rate hike of 75-basis-points prior to 1994.
The Fed ended the year with a smaller 50-basis-point increase. And although more rate hikes are in the cards for the first half of 2023, they’re likely to be tempered as inflation continues to cool.
In fact, UBS’ global chief economist Arend Kapteyn believes the Fed could start reversing its rate hikes as early as this summer, stating, “The difference between the Fed and us is that they think we end the year with a core PCE inflation rate of 3.5%. We're at 2.1%. That's a massive difference, and, of course, if you gave our forecast to the Fed, they would have a very different reaction.”
So if you listen to Powell & Co., you might be fooled into thinking a pivot is a long way off.
Plainly speaking… it’s not!
And remember, the market is always forward looking… and that’s why gold has already commenced its march toward $1,900 and why it also may soon eclipse all-time highs above $2,000/oz.
Adding further demand for gold is a weakening US dollar, which has central banks around the world beefing up their respective gold reserves. Since gold is listed in US dollars, a weaker greenback makes it cheaper for countries outside the United States to load up on the yellow metal and, thereby, reduce their overall exposure to the American currency.
With negative US growth being forecasted for the first part of 2023, the specter of recession will likely add further impetus to the Fed to pause rate hikes, which means a continually weakening dollar and, in turn, a stronger gold price. Although not official as of yet, 96% of community bankers in the US believe America’s ailing economy is already in recession.
Adding to that backdrop, we haven’t even mentioned gold’s traditional role as a safe haven asset during times of uncertainty.
We saw that play out in spades during the early part of the coronavirus pandemic with gold racing to all-time highs above $2,000 an ounce. At around $1,875/oz as of this writing, we’re not far off those record highs.
And with fears of not just a US recession but a global recession coupled with all of the negative headlines coming out of China, North Korea, and Russia… we could certainly see new record highs being set for the yellow metal in the coming quarters.
In other words, gold looks poised to shine brightly in 2023.
In past articles, we’ve talked at length about how to properly position for gains in a rising gold market… whether that be gold bullion and coins — or gold equities: the juniors, mid-tiers, and majors.
Today, our focus is squarely on the small-cap junior gold explorers.
The top juniors tend to do very well in a rising gold environment. These are the select exploreco’s that are run by highly experienced management teams with solid assets in tier-one mining jurisdictions.
It also helps when you have proven ounces in the ground… like this particular junior miner.
We’re talking ~4 million gold ounces discovered to-date (Indicated plus Inferred) right here in the safe confines of the United States.
Drills are turning now with the aim of expanding what’s already a very solid gold haul, and the company recently received an extended exploration drilling permit for a key portion of their flagship project.
Drill results to-date have been highly impressive and will be integrated into the company’s forthcoming PFS (Preliminary Feasibility Study) on a pending first-phase restart of heap leach operations.
The company is also well cashed-up to continue with the advancement of their flagship asset having raised an aggregate of C$13 million in equity funding in 2022.
Our own Nick Hodge recently put his boots-on-the-ground at the mine site where he embarked on an extensive tour of the property and met with the company’s geologists and upper management.
See just how much gold Nick personally uncovered by going the extra mile for his readers.
Editor, Daily Profit Cycle