Be Right and Sit Tight
For the long weekend, this author is on the road for a late summer vacation with the family. HAI will consequently offer just a few very brief thoughts on what was a very important week for markets, and precious metals in particular.
The stock market buckled late-week and broke some very important technical momentum levels, indicating significant further downside risk. Those breakdowns occurred in major market indexes, but also in some very high-profile MAG-7 market leaders. These bubble market breakdowns could be a signal that the broad market regime is changing towards one that’s bearish for stocks.
Now, what could be bearish for bubble markets should ultimately prove bullish for the precious metals. We certainly saw that dynamic this week. Precious metals (PMs) produced a slew of bullish breakouts, indicating that a renewed, even accelerated, phase of the ongoing PMs bull market is about to initiate.
Perhaps the latest catalyst for precious metals bullishness is the saga over Federal Reserve Bank independence. As Ole Hansen, Saxo Bank Head of Commodity Strategy, put it this week, “President Trump’s attempted—and legally contested—removal of Fed Governor Lisa Cook is less about an individual and more about the institution. Whatever the legal outcome, the signal is clear: political pressure on the central bank is rising, and it may over time introduce an ‘independence premium’ into U.S. assets—supportive for gold in particular—because investors hedge governance risk with real assets.”
Now, make no mistake, the gathering storm over central bank independence is not the cause of the ongoing precious metals bull market. The bull is instead a symptom of several real causes and of their severity: The U.S has a massive debt crisis dramatically exacerbated by hemorrhaging interest expense. It has an inflation problem. It has a helpless Fed. And the entire post-1971 dollar based global system is fracturing.
But now that markets can so clearly see the symptoms, it seems they’re better able to fully accept the reality of the unsettling underlying dollar-negative diagnosis—and that is very bullish for the precious metals sector.
As precious metals now threaten to break out into an acceleration phase of their ongoing bull market, now is a great time to review some crucial lessons in market psychology.
As famed trader Jesse Livermore explained:
“It is inseparable from human nature to hope and to fear. In speculation, when the market goes against you, you hope that every day will be the last day, and you lose more than you should had you not listened to hope… And when the market goes your way, you become fearful that the next day will take away your profit, and you get out too soon. Fear keeps you from making as much money as you ought to. The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping, he must fear; instead of fearing, he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit.”
Livermore continued, “It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine—that is, they made no real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn.”
In HAI‘s view, we are clearly in a powerful precious metals bull market just now entering the acceleration phase. Until we can uncover compelling signs signaling the end of the bull, now is a great time to “be right and sit tight.”
Weekly performance: The S&P 500 was nearly flat, off 0.10%. Gold was up 2.21%, silver gained 2.06%, platinum gained 1.17%, and palladium was down 0.89%. The HUI gold miners index gained 5.30%. The IFRA iShares US Infrastructure ETF was down 0.84%. Energy commodities were volatile and higher on the week. WTI crude oil gained 0.62%, while natural gas was up 11.72%. The CRB Commodity Index was up 0.58%. Copper was up 1.51%. The Dow Jones US Specialty Real Estate Investment Trust Index was lower by 0.75%. The Vanguard Utilities ETF was off 1.86%. The dollar index was nearly flat, up 0.07% to close the week at 97.79. The yield on the 10-yr U.S. Treasury was down 3 bps to close the week at 4.23%.
Have a wonderful weekend!
Best Regards,
Morgan Lewis
Investment Strategist & Co-Portfolio Manager
MWM LLC
