10Apr5:03 pmEST

Remember the Alamos

Now would probably as good of a time as any to remind all of us (including myself) that the total amount of gold mined in our history, since the Egyptians began mining gold before 2000 BC., would fill a little more than three Olympic sized swimming pools. Of course, I raise this point as The Fed aggressively adopts not only the Bernanke 2008 playbook for a crisis, but clearly has gone beyond in its scope alongside the federal government to the current pandemic and subsequent economic fallout. 

First and foremost, the idea that The Fed "is out of bullets," as more than a few market pundits have suggested, is not quite accurate.

There have been strong hints of a time in the not too distant future where The Fed buys stocks outright, as well as idea of The Fed going to negative interest rates, which is something Trump has mentioned himself in recent months. And then there is always QE "infinity," as various Fed heads have said in so many ways, too. 

So, again, the issue is not whether The Fed is out of bullets, because they are not and will not be for a good while. The issue, rather, is whether those bullets carry anywhere near the force that they have at various times over the last decade or two.

The market has seen many of these parlor tricks before, be it from "Easy" Alan Greenspan in 1998 and 2001, Ben Bernanke from 2008-2013, especially, and even Janet Yellen at various times in her tenure.

Furthermore, to assume that The Fed has not only put in a good bottom for equities but also may very well catapult us to new highs seems much more plausible after last week's rally and the general tone and tenor of various short squeezes since the late-March lows on the major averages. 

One scenario falls under the "hyperinflation" category, which argues that despite deflationary economic forces from the pandemic and lockdown, the current monetary and fiscal policies are debasing our fiat currency which means we may very well see huge nominal gains in equities, since we are dealing with a currency which is sharply depreciating.

However, the U.S. Dollar is not yet collapsing and, of course, it is still the world's reserve currency. Until that changes, it is tough to take this argument too seriously. 

So what, then, of the sharp rally in gold, which coincided with the bottom in equities from late-March?

Gold and gold bugs have been ruthlessly mocked at various points along the way on social media finance, or "FinTwits," be it from those who are steadfast supporters of Fed policy and recently from cryptocurrency proponents. Gold may be derided as a "pet rock," or paper tiger, or anything else for that matter. 

But there is no denying two things:

  1. Gold has intrinsic value
  2. Gold been a widely-accepted currency for most of the civilized world for most of recorded human history 

If you are not impressed with those two factors, also consider this: Gold may be the least tarnished asset class, if at all, in a time when The Fed and Central Banks, and governments, around the world have distorted asset prices via unusually easy monetarily policy, bailouts for insolvent, bankrupt firms, outright entering the market and buying various fixed income products, and so forth. 

It is a long, holiday weekend of an extended lockdown. So I am stepping outside of what we usually do here at Market Chess, as I have no desire to become overly macro-oriented. 

Thus, turning to the technicals I am impressed to see various precious miners, a topic I will flesh out in greater detail for Members in my weekend video, forming the "right side" of multi-year base bottoms. 

On the Alamos Gold (AGI) monthly timeframe, below, the Toronto-based small/mid-cap gold producer has taken the last few years to form a clear and defined base bottom pattern with explosive potential amid a sharp sector rally to close out last week, seemingly under-the-radar too as the squeeze in stocks captured the headlines. 

And so I leave you with this to consider on Good Friday: What if gold is not as dumb and useless as its critics have declared?

What if, perchance, gold is indeed the least tarnished asset which has already begun sniffing out diminishing returns from various markets (especially equities and fixed income) in the coming months to QE infinity, trillions in stimulus, and ultra-easy interest rates which discourage savers and have been for a good while now? 

If so, we can look back and say that we remembered the Alamos and its peers for waving red flags. 

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