The four-leg roadmap
Gold sits near $4,100 now. I expect one more drop to $3,750 before November. I could be wrong. We might already be breaking out, but I lean toward a correction first.
Leg one ended in January, with gold topping at $5,600 and silver near its own peak. Since then we corrected, and leg two has not started. Leg two begins once silver clears its key resistance and pushes back toward a new high. Clearing that resistance is the hard part.
Leg two should start in Q4 and carry gold to $6,500-$7,000 over about 12 months or less. I expect everything to rise about 100% by Q1 next year, the same kind of run we saw from August to January last time, when returns hit 100% or more. In GDX terms that is a 100% gain between now and Q1, then another push to 150% through Q2 and Q3, around the $6,500 level.
Leg two matters because it is when mining stocks get fairly valued. Right now they are hugely undervalued and sentiment on the miners is very weak. By the end of leg two, some will even be highly valued. Leg three is where the real money gets made: gold runs to $7,000-$8,000. The path I see is a move to $6,500, a pullback to $5,300, then a rip to $7,500-$8,000 in leg three.
I am a speculator, so I do not care much about leg two beyond the momentum. That is when I stop buying and sit back. At the top of leg three I sell all my mining stocks. It is a trade. Leg four is possible, and I think we will get one, taking gold to $9,000-$10,000, which many people expect. I get out in leg three and miss that upside.
Why the Fed is trapped
By letting debt and interest rates climb this high, the Fed has boxed itself in. Forget the dual mandate. It has two real choices: fight inflation, or stimulate the economy. Each choice creates a crisis on the other side. Push growth, and you print money, get stagflation and more inflation, and eventually the recession they fear. Fight inflation, and the economy hurts and falls into recession anyway. Either way, they are doomed.
That is why central banks are buying gold. They see that America is stuck with nothing left to do, so they move out of dollars and bonds and into gold, playing defense. This trend does not stop until the whole thing blows up.
The numbers back it up. China bought 173 tons in June. Multiply by ten and that is about 1,100, roughly 1,400 tons annualized, against only 3,700 tons mined worldwide each year. India imports about as much as China. Together China and India take more than two-thirds of all gold, and central banks pile on top. Those three are soaking up the supply. The West, Europe and the United States, is not accumulating. Eventually it will want some.
Nobody owns gold yet
The people who will buy gold and silver are the ones who own none. A survey of 300 family offices, wealthy families with managers running their money, found 70% held zero gold. The other 30% averaged just 1%. They ask why bother with gold when the stock market pays 20% a year. When this turns, I call it the fear trade.
The thesis rests on the trends. US debt is rising, interest rates are rising, the annual interest bill is rising, and the debt bubbles keep worsening. Housing unaffordability has never been this bad. Bankruptcies in both businesses and households are climbing. There are no real green shoots out there except AI. The world is also tied to US equities, with passive flows from the UK and Europe feeding elevated markets. When the tide turns, it becomes a big problem.
The speculator's mindset
Pure speculators like me are about 1% of all investors. Another 5% or so dabble a bit on the side, keeping their standard holdings and throwing a little at gold. Most people coming into gold and silver are just dabbling, wanting a small dose of that big alpha, gambling a slice of their portfolio. They do not believe the thesis 100%. If they did, they would be all in like me. Belief runs on a scale, from 25% sure I am right to 90% sure.
I analyze gold stocks using $7,000 gold and $200 silver today, looking two to five years out, with two to three years my sweet spot. I do not care about the next 24 months. Near term, I only want to see deterioration, and I see it. So I accumulate as many stocks and shares as I can before this thing burns to the ground, and I think we are running out of time. I have accumulated mining stocks for 20 years. I hold 168 positions, and I found another juicy one last night, so make it 169.
Buy smart, sell smart
Buy the dips, do not chase. When gold reaches around $5,500, the next high, I stop buying. At $5,000 I get very selective, only the laggards that people are ignoring, and not much even then. My buying is ending because I want to buy low and sell high.
Most people are not after the five-bagger. They want a 25% or 100% annual return, and once they get it they are happy. They chase this thing all the way to the top. That crowd makes me money, because they keep pushing these stocks higher and higher.
Debt is now $40 trillion and interest payments run a trillion a year. People are starting to see it is out of control. I always knew this would happen, because it is how it has always worked.
Governments default, they do not tighten
Historically, governments push debt as far as they can and then default. Countries do it again and again. They do not tighten their belts when a debt problem hits.
Look at the Fed holding rates yesterday. Everyone thought they would raise, but I knew they could not, because interest payments already top $1 trillion. Raise rates and that bill only grows. The average rate on the national debt is around 3.5% to 3.75%, and the two-year is near 4%, so all the borrowing pushes payments higher. How can they raise rates? They cannot.
The Fed changed its mandate and never said so publicly. Greenspan changed it, and everyone still repeats that the mandate is controlling inflation and full employment. That is no longer true. It shifted in '87, when the stock market fell about 25% in a single day and Greenspan said there was nothing to worry about, that they would do whatever it takes to keep the market up. They called it the Greenspan put. From that point the Fed cared about economic growth, not full employment or low inflation. Unemployment at 5% or 6% is fine with them, even though full employment is supposed to sit near 3%.
Today the priority runs about 80/20: 80% keeping economic growth, 20% watching inflation. They watch inflation only because if it runs wild it could derail growth. Their true mandate is to somewhat control prices while ensuring growth of 1% or better. Hit 1% growth and they are happy; the employment rate is just noise, a moniker.
An everything bubble
We now have an everything bubble: stocks, housing, and national debt all inflated at once. In 2008 the only bubble was housing. If a recession hits this multi-pronged setup, it gets really, really messy, and we have never faced this before.
A buying opportunity?
Does the correction make me happy, and is it a buying opportunity, given that after 2011's near-parabolic run it took many years to reclaim the old high? As a speculator, I see most people entering now as dabblers who do not commit to the full thesis. That hesitation is exactly why bull markets climb a wall of doubt. Institutional and Eastern buyers accumulate during the uncertainty while retail waits for better headlines and ends up paying much higher prices.
