A lot of the jokes in my community begin and end with gold bugs. I can’t think of any group that has been so wrong for so long. You could have literally been in anything else the past 8 years and made money. It’s all good though. What goes around comes around. Gold will have its day again, and I think it could be around the corner.
The US Dollar has been a big focus of ours all year (see here, here and here). The implications of the US Dollar’s next move will be felt worldwide. I’ve been in the camp that the US Dollar Index below 98 is positive for stocks and that a drop in the Dollar will most likely coincide with a rotation into emerging markets and european equities. While the Dollar has remained below 98, it’s been more of a sideways range that anything else. But we may have just seen the beginning of this collapse.
Here’s why this is important:
As I mentioned in other posts, this is likely to be a positive for stocks because if we’re getting that rotation, US stocks aren’t going down in that environment, they just may not be keeping up with the others, which is fine. My point is more about stocks as an asset class benefiting from a weaker Dollar.
But today, I want to focus on another obvious beneficiary of a falling Dollar: Gold. When precious metals are doing well, the biggest pieces of crap mining stocks are the ones that do the best. All of those private investments in junior gold miners out of, say, Vancouver that have been worthless, will go up 10x 50x 100x. In the public markets, it’s the little public ones that will outperform on a metals rally. Just look back to early 2016. The worst ones did the best. That’s where the beta is.
Here is a chart of Junior Gold Miners going back a few years. You can see that the face-ripper in early 2016 ended with a classic top and ensuing sell-off. It’s taken 30 months or so to potentially end this recovery process:
If the Dollar Index is below 98 we want to continue to aggressively own precious metals and especially some of the crappiest junior miners we can find.