Over the past few trading sessions we have seen a dip in oil and many commodities off of their highs. Yesterday, oil fell below $100 a barrel and the price of gold fell down towards $1915. It isn’t unusual to see the stock market bounce into FOMC meetings and for precious metals to dip and then rally into them. Either way, the mining stocks were strong despite the pullback. As you can see the GDX mining stock ETF actually went up yesterday.
Mining stocks are now trading stronger than gold, which is a confirmation of the rally in both that began in February. I own GDX in my IRA and think one could buy here with a stop loss below the 50-day moving average. Of course, the top small cap miners, such as my top stock pick for this month, should go up more as this metals rally develops.
The stock market bounced, but I’d be very wary of getting all bulled up, because of one days worth of trading action.
It is going to be interesting to see what the Federal Reserve says after they raise interest rates today.
Rates are so well below the CPI inflation rate it is going to take a long time to get them back above them to actually beat inflation back down.
So, what will the Fed do?
Look for them to make a crazy prediction that they can take rates up to to 2-3% over the next year or two and that will be enough somehow for inflation to just vanish. They’ll probably claim that most of the 7.9%+ annualized CPI inflation is due to temporary factors, such as the Ukraine War, that will somehow vanish.
I get the idea they might say this from this quote in a Tuesday morning WSJ article – “At the end of last year, many Fed officials thought they might only need to raise rates to a neutral level, one that neither spurs nor slows growth. Most officials estimate neutral is between 2% and 3% when underlying inflation—stripped of idiosyncratic influences such as from supply shocks—is at the Fed’s 2% target.”
Such an argument would be nonsense, but it’d be on the lines of what they predicted a year ago when they said inflation would appear in the Spring as “transitory” and vanish. If they say this they’d be essentially trying to claim that the current 7.9% CPI inflation rate should be 2-3%, which is nonsense. Just go get gas, go to the grocery store, buy anything and it’s up more than that.
The problem is rate hikes big enough to stop inflation would send the whole economy into a recession and spook stock market investors, so they’ll likely promise rate hikes not big enough to stop inflation in reality, but they’ll say they will be good enough anyway.
In the end, though, what they predict and say doesn’t matter. Really what anyone predicts doesn’t matter.
All that does is the economic data and what trends are happening in the bond market, and bonds made a secular peak when interest rates went to zero and now are in a secular bear market, which will end when the bear market in ETF’s such as JNK come to an end.
JNK is trading now below all its moving averages and even below its lower 200-day Bollinger Band in a stage four bear market.
As for big cap mining stocks I own, check out the charts of these two that I own.
Notice how both of these stocks are now outperforming the S&P 500. The relative strength ratio for Barrick has been going up since New Years. To beat the market you need to be in stocks and sectors that are beating the market averages.