by Dave Kranzler of Investment Research Dynamics
“April 2021 money supply and monetary base growth continued to explode” – John Williams, Shadowstats.com
Williams is referencing the “base” monetary aggregates which are compiled monthly. The Fed’s balance sheet grows by the week, hitting $7.922 trillion as of May 19th. It’s doubled plus another 13% since September 2019, when “QE” was restarted. The Fed has been printing money and buying Treasuries and mortgages at a rate greater than the assumed $120 billion per month. But the mainstream media fails to report that the policy statement reads “at least $120 billion per month.”
The rate of growth in the money supply is unprecedented in history. It showed up first in the financial markets: stocks, bonds and housing prices (yes, because most homes are purchased using a high loan-to-value mortgage, homes can be considered financial assets). Now the devaluation of the dollar is showing up – uncontrollably – as price inflation across goods and services.
It’s ludicrous for the Fed to promote the idea that the spike up in consumer prices is “transitory.” Just like it was absurd for Ben Bernanke in 2007 to proclaim that subprime mortgage defaults were “contained.” As long as the Fed’s balance sheet keeps expanding and the money supply continues growing, price inflation will get worse.
It many not feel like it because of the volatility in the sector and because of all of the hype in the media about the general stock market, but gold is up 12.7% and silver is up 15.3% since March 30th. Since March 1st, GDX is up 30.3% while the S&P 500 is up 7.9%. If the SPX had risen 30.3% since March 1st, the anchors on CNBC would be doing naked cartwheels on live television.
The point here is that the precious metals sector, in spite of the intense manipulation right now, is starting to reflect the soaring rate of dollar devaluation/price inflation. After the run it’s had starting in March, it’s likely we’ll get a brief period of technical consolidation with some volatility.
But more money printing and deficit spending will be required to prevent the economy from falling apart again. We got a preview of this with Biden’s proposed spending budget this week. This will be rocket fuel for the precious metals sector.
Gold is now making a serious run at the $1900 benchmark and silver is challenging $28. I expect both metals to undergo two-way volatility around those two key technical and psychological price levels for at least a few weeks. But I would not be surprised if both price levels have been left in the rear-view mirror by the July 4th holiday.
The mining stocks remain historically undervalued in relation to the money supply and relative to the prices of gold and silver even after the 30% move since early March. After a brief consolidation period that will relieve the “overbought” readings of the RSI and MACD, I expect the mining stocks to make a huge run higher this summer.
The commentary above is from the introduction of the latest issue of the Mining Stock Journal. I look for early stage and advancing junior exploration development companies, ideally ideas that are not yet well-followed. I also will point out stocks to avoid with a brief rationale when subscribers ask my opinion on stocks I do not cover. A good example is Americas Gold and Silver (USAS), which I recommended avoiding a couple years ago.
I also recently started a “mid/large cap corner” in which I present some shorter term trading ideas in larger producing miners when I believe the market has made a mistake in taking down the price of specific stocks. This would include call option ideas if applicable.
The mining stocks are once again historically cheap. At some point this year I will be raising the subscription price, though existing subscribers will be grandfathered at the current monthly rate. If you would like some ideas for investing in mining stocks, take a look at my Mining Stock Journal.