I had recently been expecting a correction in gold and gold stocks because that’s what history tells us to expect. It has almost happened twice in the past few weeks, but then it has not.
The first time, it was Brexit. Gold was looking weak as we headed into the vote. After the unexpected outcome, gold ran up hard as markets panicked over the possible consequences. The panic didn’t last, as expected, and gold began to weaken again.
Then we got last week’s Federal Reserve meeting. The statement featured changes in language meant to suggest that interest rate hikes could be back on the front burner at the next meeting. In the past, even this gentle reminder would have caused a serious hiccup in the gold price. But the market simply ignored the Fed. This non-response marked a major change in market thinking. The Fed has lost credibility. Markets no longer believe the Fed can raise rates and ‘normalize’ monetary policy. This had to happen eventually but it actually happened last week.
So, it looks to me that gold is now headed above $1400 and gold stocks have more to run. The correction will still come but later than expected and from a higher level. Probably that means the ultimate correction will be harder, faster and deeper. Just not today. There are many reasons to own gold, as I have been saying since February—European bank problems, a slowing economy, negative interest rates and central bank stimulus in most of Asia and Europe. Now is the time to own more. But be careful. Nothing goes up forever.