‘Oh, what a feeling!’
This ring a bell?
It’s Toyota’s tag line, and has been for, I don’t know, as long as I can remember.
You’d be jumping up and shouting it out, just like the ad, if you hitched your portfolio to the gold sector since last November.
This is where the action is!
Check out this update on the top stocks last week from broker Selfwealth:
These are the highest stock movers over the week to Friday, 6 January, and the top three are gold stocks. Two of them also happen to be on the buy list of my service Australian Small-Cap Investigator.
What’s going on?
Gold is rumbling in the US and pushing hard toward US$1,900 an ounce.
Sentiment has roared back into the sector after a torrid two years.
Can it keep going?
My colleagues over in the US crunched a whole lot of data to answer this question.
This is what they found…
The US dollar matters most for gold, not inflation as commonly presupposed.
Since 1973, there have been 20 years where the US dollar was down. Gold rose in 17 of those years. That’s an 85% win rate.
Over the same time frame, there were 21 years when inflation was rising. But gold only went higher in 13 of those. That’s a 60% strike rate.
The price action in gold would also suggest the market is not expecting ongoing aggressive hikes from the Fed.
This could help share markets recover in 2023.
The early action this year supports this case. We’re seeing some consistent green, finally!
And don’t forget iron ore. It’s rallied back up to US$117 a tonne. It could possibly break US$120 this week.
This is extraordinarily supportive of the ASX 200 because so much of the weighting is from BHP, RIO, and FMG.
Anything more than US$100 is a ripping price for those firms and set up more juicy dividends in February.
I certainly don’t see any reason to avoid the market. Most of the issues that plagued the market in 2022 should be priced in by now.
Then it’s a case of deciding which sectors and stocks to back.
The small-cap sector deserves a look. It has not yet recovered in the same way as the top 50.
And yet, inevitably, fund managers will hunt down this end because it’s where you can find growth in a slowing economy.
Case in point: demographics.
I have a friend that works for the Department of Health. Every time I see him, he tells me costs are skyrocketing all over Australia and the West.
Any firms that can tap into this river of money are almost recession-proof. You don’t delay heart surgery because of the Fed’s monetary policy.
Australia’s baby boomers are advancing into their 70s, and time stops for no one.
Governments will keep issuing a gargantuan level of bonds to fund these expenses. Private firms can get on the end of it.
Certainly, most of these costs can’t be met with tax revenue alone.
This is why gold seems like such a slam dunk in the next five years.
Western governments haven’t got a hope of paying for all their promises, not to mention a proxy war on Russia on the side as well.
It can only be financed with deficit spending, which, in turn, will be financed with money created from nothing via the central banks.
Economist Michael Hudson has a line:
‘Debts that can’t be paid, won’t be paid.’
Clearly, the US doesn’t have a hope of paying back US$30 trillion in federal debt. And that’s just the ones they carry on the books.
The current dynamic is just a bridge to the next phase of the financial system anyway: central bank digital currencies (CBDCs).
Therefore, a new CBDC will be a chance to either inflate or restructure these debts. It can also be guaranteed that the average saver is the one likely to be stiffed.
Why stuff around with fixed income when companies can at least own hard assets or pass on rising costs via higher prices?
I’m not selling my shares and will keep looking to acquire more.
If you’re interested in my top five ideas to buy right now, go here to get started for 2023!
Editor, The Daily Reckoning Australia