GLD - The Fed Pivot Will Likely Be Too Late

Summary

• Gold open interest is still low.
• I believe the US consumer is toast.
• The Everything Bubble.
• Top 3 gold exploration discoveries in Canada.
• Sell Tesla with +50% profits.

Investment Thesis

The US economy is sliding towards recession and I believe the Fed will wait too long to lower rates and rescue the economy. I expect the bear market will fall further after the Fed pivot like in 2000 and 2008. And in my opinion, like back then, gold will be viewed as a better alternative investment and will rally further from here.

Gold ( GLD ) is only at bat and not even at first base yet.

These charts of gold and open interest below are 5 year charts. I find the gold price is manipulated so much it is better to watch the Comex charts and trading as much or more so than fundamentals. I watch open interest because if there is a lot of buying and speculation you will see a rise in open interest like the 2020 bull run. Open interest is still very low which means the market is oversold, even considering the price increase. The current rally has mostly been driven by short covering. Remember back in November I highlighted that managed money was 41,000 contracts short, now they are over 60,000 contracts long.

There has been some additional buying but mostly it has been short covering or else open interest would have increased much more. The Central Bank buying was a factor in convincing shorts to cover and spurred some buying. If speculation comes back into the market, and I think it will, gold can go a lot higher.

So far the S&P 500 ( SPY ) is holding on to a positive January but recession pressures are rising and earnings falling. The market broke the downtrend channel to the upside and tested 4,100 resistance. I think the market will break higher and its best chance will be the next few months if inflation continues to ease and the Fed slows rate increases. That said, this will be a bear rally and a bear trap.

U.S. retail sales posted their biggest drop in 12 months in December. Purchases at stores, restaurants, and online declined a seasonally adjusted 1.1%. And remember these numbers are inflated with high inflation.

I believe the US consumer is pretty much toast

Not only has the consumer used up savings but has piled on record debt. To add insult to injury they have to pay higher interest rate charges. The US average interest rate on credit card debt went up from 14.5% to 19% in 2022.

And the future for the consumer looks horrific. Over the course of 2022, America's real disposable income fell to its lowest level since the 1932 Great Depression, Heritage economist EJ Antoni said. The Federal Reserve Bank of St. Louis shows real disposable personal income dropped to -6.4%, data released by the Federal Reserve Bank of St. Louis shows . The steep decline cost Americans over a trillion dollars in 2022, Antoni reported.

The Everything Bubble

The most important aspect to successful investing is predicting extreme bottoms and tops in the markets. Especially the bubbles because they can be so damaging to your portfolio when they pop. You don't have to get it right on, just close enough to avoid the major damage.

I have spent a lot of effort studying cycles. I profited from the Japan stock market bubble with Nikkei Put Warrants before I had a newsletter. Since then I predicted the 2000 tech bubble, the 2007 real estate bubble. I predicted the Canadian marijuana bubble. Predicted the top in bitcoin within a few weeks . And the recent bear market with my 2022 Outlook . I am not negative all the time making it so that I will eventually be right. We made a killing in marijuana stocks before they went down the tubes. I had huge winners before the 2000 tech bubble, like Research in Motion (Blackberry) and NetOne that developed the debit card. However, I did not buy into Crypto at all.

What is so scary about this recent bubble, is so many things inflated together, like bubbles all around the same time. Many have coined it the 'Everything Bubble'. Bonds were in a 40 year bull market and stocks went to extremes as I pointed out in my 2022 Outlook. Crypto currencies joined the bubble and real estate too.

And the stock market is still over priced in historic terms. The p/e ratio the end of December, about 20.5 is well above the lows after the 2000 tech crash and the 2008 crash. And earnings declines would also negatively affect markets. Earnings are declining in most sectors other than energy.

I would assume that you have heard over and over again that the Fed will soon pivot and that will be great for stocks. Nothing could be further from the truth. In previous bear markets, the actual bottom occurred long after the Fed pivot. I am calling a pivot when the Fed cuts interest rates for the first time after raising them. I could give numerous samples, but let us look at the past two bear markets.

• The Financial crisis of 2007/08 - The Fed pivot was August 2007 and the bear market bottomed in February 2009, 18 months later.

• The Dotcom bubble of late 1990s/2000 - The Fed pivot was December 2000 and the bear market bottomed in September 2002, 21 months later.

The problem is that the Fed always acts too late. Remember just recently when they said inflation was transitory and they were far too late raising rates. I was critical of the Fed about this a year ago. The market consensus is that inflation will continue to fall but I believe it has become entrenched. The Fed will pivot long after the economy is in recession and stock markets declining again. Chairman Powell has made it very clear that he intends to err on the side of excess tightening, fearing inflation will bounce back if he does not. This certainly increases the odds that the Fed will pivot too late to fend off a steeper bear market.

Top 3 exploration plays in Canada

Amex Exploration ( AMXEF )

On January 23rd, Amex announced results on continued expansion and definition drilling of the High Grade Zone ("HGZ") on the Perron project in Quebec. The results included intercepts from both the eastern and western portions of the system and are focused on defining less understood areas as well as testing the strike and depth extensions of the zone. Highlights (in core length) include:

• PE-22-535 : 75.81 g/t Au over 4.85 m at a vertical depth of ~750 m Including: 193.79 g/t Au over 1.00 m And including: 235.87 g/t Au over 0.50 m And including: 77.12 g/t Au over 0.50 m

• PE-22-524W5 : 7.40 g/t Au over 14.80 m at a vertical depth of ~1200 m Including: 152.22 g/t Au over 0.50 m

• PE-22-524W6 : 24.34 g/t Au over 3.85 m at a vertical depth of ~1210 m Including: 76.38 g/t Au over 1.20 m

• PE-22-524W7 : 45.66 g/t Au over 1.80 m at a vertical depth of ~1190 m

As you can see in the above graphic, 100s of drill holes have been completed and intersecting high grade gold. Amex conducted a total of 104,639 metres drilling during 2022, which was one of the largest drilling programs conducted in Canada " For the coming drilling season, we will be focusing on the eastern portion of the Beaupre Block where we see excellent expansion opportunities, " said Kelly Malcolm, VP Exploration at Amex Exploration in their 2022 exploration review.

Most trading is in Canada so on the C$ chart we can see a wedge pattern with higher lows. A break above the wedge, over $2.00 would be positive and a close above $2.25 would confirm a new uptrend.

New Found Gold ( NFGC )

New Found Gold has opened its new 25,000-square-foot core shack and office facility in Gander, Nfld., designed and constructed to support logging and processing of drill core from the continuing 500,000-metre drill campaign at its Queensway project. On January 24, they release drill results from 37 drill holes that were completed as part of a program designed to follow up on newly discovered high-grade gold at Keats West located west of the highly prospective Appleton fault zone (AFZ) and from expansion drilling at Keats North.

At Keats West, ongoing drilling up-dip of NFGC-22-960 that intercepted 4 2.6 g/t Au over 32m continues to intersect expansive zones of gold mineralization including 6.68 g/t Au over 24.00m in NFGC-22-784, 13.9 g/t Au over 5.00m and 2.01 g/t Au over 7.00m in NFGC-22-808, and 2.12 g/t Au over 16.25m in NFGC-22-868.

Across the AFZ to the east is Keats North where an extensive array of brittle faults host to high-grade gold have been discovered and traced over an area 150m wide x 630m in strike . The focus is on the top 200m of vertical depth. Highlight results from this drilling include 28.8 g/t Au over 3.45m in NFGC-22-855 and 2.13 g/t Au over 14.10m in NFGC-22-813.

A new high-grade vein has been discovered between Keats North and Golden Joint reporting a grade of 50.3 g/t Au over 2.45m in NFGC-22-766. The graphic next page is a good snap shot of discovered zones and some of the high grade highlights.

The C$ NFG chart also shows a wedge pattern with a trend of higher lows. A break above this would be positive, but there is significant resistance around $6.60 to overcome.

Victoria Gold ( VITFF ) and Zonte Metals ( EREPF )

Another very significant discovery in Canada is Victoria Gold's Raven Project. Victoria Gold is already producing at their nearby Gold Eagle Mine. For the full-year 2022, Eagle gold production was 150,182 gold ounces.

From their home page, a s at December 31, 2021, the Reserve is 2.7 million ounces of gold (133 m tonnes grading 0.65 g/t) at Gold Eagle. On October 31, 2022 they released their first resource estimate at Raven which is about 15 kilometers east of the Gold Eagle mine and it is a near surface 1,070,329 ounces at 1.7 g/t gold. This Raven resource is almost 3 times the grade of their nearby producing Eagle Mine.

On January 19th they released more drill results that included 3.59 g/t over 83.5 meters. Of the 90 drill holes drilled at Raven in 2022, 30 drill holes (8,810m) were located within the Raven Resource footprint and 14 drill holes (4,410m) were collared within 100m of the Raven Resource. The Raven Distal Exploration Program consisted of 46 drill holes (12,024m) drill holes, the majority of which are collared greater than 100m from the Raven Resource bounds. Raven mineralization remains open, in particular to the east which will be the focus of the next phase of exploration.

The 1 million plus resource is in pink and you can see that there are a lot of drill holes that hit good numbers outside this resource. There is no doubt that this is going to be a lot larger and will end up a multi-million ounce discovery. This gives Victoria Gold a lot of upside potential.

What is more, Victoria Gold says it is mostly open to the east and that brings me to Zonte Metals, because they have the property on Victoria Gold's boundary where Victoria Gold has found high grade gold right at surface on the Zonte border. The next two graphics are from Zonte's presentation.

The Raven deposit is 2.3 kilometers from Zonte's border and is open in the direction of Zonte's border. Victoria Gold's soil anomaly goes right to Zonte's border and is next to the Quartz and Bullion targets that Zonte has identified. In 2017, Zonte made a drill discovery at the 2-4 zone where hole MJ-04 intersected two zones, 20.44 meters of 0.72 g/t and 20.28 meters of 0.69 g/t at the bottom of the drill hole so it bottomed still in mineralization. These grades are similar to Victoria's Gold Eagle mine.

For a bigger picture of the two systems, note that Zonte's intrusion (in pink) is much larger than Victoria Gold's Raven intrusive and also their Gold Eagle intrusive (not shown). I have no doubt Zonte will have a large discovery on their intrusive. Zonte's strategy of letting Victoria Gold spend $$ to narrow down targets on Zonte's ground, next to Victoria Gold was either brilliant or lucky.

Victoria Gold has rallied up to support on the chart. I would look to buy on a pull back.

Zonte appears to have bottomed out around 10 cents going back to support over 6 years ago. Little down side form here. Beware the stock trades thin at these prices.

Conclusion

I believe owning a position in what could be considered the top 3 Canadian gold exploration plays will provide very good leverage to rising gold prices. I have written about Victoria Gold and New Found Gold in the past on Seeking Alpha. Amex Exploration usually has ample liquidity, but Zonte Metals is a junior stock on Victoria Gold's border and has low liquidity at these prices. Be patient and don't chase the stock. In fact I suggest that for all of them, there is no panic to buy until we see gold hit $1970, official bull market status.

Tesla ( TSLA ) that I suggested a bottom fish buy on January 9th has witnessed a strong rally. I would sell and lock in the +50% profits.

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