The talking heads on financial media are in overdrive today, flooding us with clever noise about what the Fed has to do, might do, and couldn’t possibly do. The consensus is, in my opinion, overly optimistic. On top of this, Trump’s tweet that he will meet with China’s Xi at the upcoming G20 summit has assets across the board in the green. I can only see this as wildly optimistic.
But hope is not a business plan. And optimism without a strong data trend to back it is begging for disappointment.
- One modestly weak jobs report is not enough bad news for it to be a slam-dunk that the Fed will be as dovish as Mr. Market expects.
- One tweet claiming a meeting will happen is not the same as a productive meeting actually happening, let alone a deal being made—and a far, far cry from a material new agreement being put into practice.
We’ll know about the Fed tomorrow, and about the China meeting soon enough.
But here’s the thing…
If the Fed gives Mr. Market what he wants, it throws the US dollar under the bus, and that’s bullish for gold. If not, Mr. Market throws a tantrum, and that’s sent gold higher every time it’s happened over the last six months.
This is precisely the asymmetrical risk scenario I wrote about in my May 11, 2019 Speculator’s Digest email. (If you’re not signed up for those, I encourage you to sign up now, as they often include original analysis not published elsewhere.) Either outcome should be good for gold.
Key point: with gold trading near multiyear highs, a breakout could take it above longstanding resistance, resulting in a massive wave of technical buying.
If that happens, we might even see some of the FOMO capital that’s been chasing Bitcoin come back to chase gold again.
But even if not, gold breaking out of the range it’s been in since 2013 will do wonders for the right gold stocks.
But what about China? Could a new deal between Trump and Xi make Mr. Market happy again and reduce safe-haven demand for gold?
Well, anything could happen, but I very much doubt this. Sure, markets would pop on positive trade news. We’ve seen that before. And we’ve seen markets melt right back down again when the good news turned to bad the following week.
The reality is that even if Trump and Xi announce meaningful progress on a new deal, it would take time for their minions to negotiate and finalize the details… more than enough time for the deal to fall apart again. Mr. Market may have a short memory, but not so short as to forget Trump blasting the Chinese for reneging on terms previously agreed to.
This makes it highly unlikely that even the most positive trade announcement after the G20 meeting will erase all the fear that’s driving investors into safe-haven assets. That would take a lot more good news over time.
Plus, the Fed is the more powerful factor here.
Even the most beautiful photo of Trump and Xi shaking hands over a new deal wouldn’t hold markets up if the Fed turns hawkish again.
That makes tomorrow’s news more impactful on investments in the near term than whatever happens between Trump and Xi at the end of this month.
I’m very glad I have a portfolio of stocks poised to benefit—and I hope you do too.
Enough said. Now let’s see what happens.
