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Joe McAlinden Reverses View, Predicts Recovery for Gold, Oil and Housing

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With the markets in whiplash mode, Joe McAlinden, founder of McAlinden Research Partners and former chief global strategist with Morgan Stanley Investment Management, believes volatility is going to stick around for a while, and we might see a correction double of what we've had so far. In this interview with The Gold Report, McAlinden bucks conventional wisdom to argue that an interest rate hike is good for gold and oil, and lays out his investing strategy for this period of market uncertainty.

The Gold Report: For more than a decade, you led Morgan Stanley Investment Management's global investment strategy; now you own your own research firm based on your observations of the industry for more than 50 years. How do you explain the volatility in the markets right now and how should investors position themselves to prepare for what is coming?

Joe McAlinden: It has been a wonderful bull market, a wild ride going all the way back to 2007 when the market made its top. That was followed by a horrendous plunge. We've not only made that back, but the market has reached highs that were 36% above the 2007 highs. I had been concerned recently, however, that price-earnings ratios have become elevated and we are seeing other spooky similarities to the conditions that prevailed prior to the 1987 crash, including the absence of a more than a 10% correction for three years and a breakdown of small-cap stocks. The market could be vulnerable to some kind of major shock. I believe that the big shock is only beginning to unfold and that as it does, this correction will get considerably worse, perhaps double what we've had so far and maybe even worse than that.

TGR: What do you think the market expects the Federal Reserve Board to do? Continue reading "Joe McAlinden Reverses View, Predicts Recovery for Gold, Oil and Housing" →

What Tesla Needs to Know About the Graphite Sector

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The Gold Report: What is the state of the current global graphite market and what impact might Tesla's construction of a battery Gigafactory in the desert in Nevada have on future demand for the mineral?

Blair Way: Because graphite is used in many energy-related applications (including electric vehicles, Pebble Bed Nuclear Reactors, fuel cells, solar panels and electronics ranging from smartphones to laptops), it has been categorized as a critical, strategic mineral by several governments including the United States and Europe.

What does this really mean? At this point in time it means nothing—graphite is in oversupply and prices are low. However, if China decided to stop supplying graphite to the world, then the West would be in trouble. This is highly unlikely to ever happen. As far as the impact of the Tesla plant on the greater market, that's yet to be defined in detail, but it will create more demand for graphite, both natural and synthetic.

TGR: How big is the graphite market? Continue reading "What Tesla Needs to Know About the Graphite Sector" →

Could A President Trump Put People Back To Work And Help The Dollar?

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The Gold Report: In honor of Labor Day, let's discuss unemployment. You estimated that when all workers are counted, the unemployment rate in July was 23% compared to the government's reported rate of 5.4%. What is different about the job market today than before the recession?

John Williams: In a normal economic recovery, people who have lost their jobs start working again as the economy improves. That hasn't happened this time, at least not to the extent suggested by a 5.4% unemployment rate (U3), where the government's headline definition of "unemployed" is quite narrow. To be counted among the headline unemployed, you have to be out of work and actively to have looked for work in the last four weeks. If you want a job, but have given up looking, the government counts you as a "discouraged worker" or "marginally attached worker" and you don't show up in the headline number.

If you haven't looked for work in more than a year, even if you would like to work, then the government just doesn't count you in even its broadest measure of unemployment (U6); you just disappear from any of the unemployment measures. As a result, when the government says that 200,000 fewer people are unemployed in a month, and the headline unemployment rate drops, often there isn't an increase of 200,000 people who are re-employed. They just have been defined out of existence. My broad unemployment estimate includes those no longer tracked by the government, those who cannot find a job, who have given up looking for work for more than a year because nothing is available, yet they still would like to find a job, even though they may be doing other thingslike taking care of grandkids. That broader unemployment number is around 23%.

TGR: Have the types of jobs changed? Are we seeing fewer jobs in manufacturing and finance now than there were before? Are there other areas that are growing, like technology and service jobs? Continue reading "Could A President Trump Put People Back To Work And Help The Dollar?" →

Look for Value Opportunities and Put Your Capital to Work Selectively in this Market

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The Gold Report: When we talked in November, you warned that there would be downward pressure on gold this year. What are you anticipating for the balance of 2015 and into next year?

Florian Siegfried: We were being cautious in November when we published guidance that indicated gold could trade as low as $1,070 per ounce ($1,070/oz) as a support zone. And that is pretty close to where it is trading right now. But I think that we have to distinguish between the paper price of gold and the physical price, which trades at a premium. For example, the U.S. Mint currently sells gold at around $1,400/oz.

"Pretium Resources Inc.'s Brucejack is one of those mines that brings a long mine life and high grade in a safe jurisdiction."

This suggests that there is some tendency toward increasing premiums in the market for physical metal. Where we go by the end of the year is a difficult question because it's always hard to catch the bottom of the market. But a look at the last three or four years gives us some clues. Hedge funds were maximum net long in gold at the peak of 2011, and now they're maximum net short, which could be a good contrarian indicator (see chart above).

It looks as if $1,080/oz could be the bottom. It's not defined yet, but the sentiment is definitely at extremes.

The turn in gold will come from short covering, and the short covering will come when the bearishness really reaches a climax event. Probably we are there, but we will have to wait and see. It is difficult to make a call for year-end because there are so many factors influencing the gold price, and sentiment is extremely negative. The trigger for moving up could come from the bond market, which is in a difficult spot right now. Liquidity is down. Yields and credit spreads are rising. When something goes wrong there, where will the conservative money go to? I don't think it is going to go back into government funds. As investors lose confidence, that could be the trigger for gold. We are probably going to see this in the fall, by September or October. I think the bond market is about to turn around.

TGR: What are some of the other triggers you're watching? Are you monitoring the U.S. Federal Reserve and whether that rate hike happens in the fall? Continue reading "Look for Value Opportunities and Put Your Capital to Work Selectively in this Market" →

Supply and Demand Will Rescue Gold Soon

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The Gold Report: The gold sector entered full-blown panic mode in July with the Bloomberg analysts forecasting a dip below $1,000 per ounce ($1,000/oz) this year, and Deutsche Bank forecasting $750/oz. Is this just fear feeding on fear, or is there something else going on?

Jeffrey Mosseri: It is fear feeding on fear, but there are two other things going on. The first is the strength of the dollar, and the second is the weakness in the price of oil. Combined, these two factors have greatly and negatively affected the prices of all metals in U.S. dollars. Over the past year, gold is up 2040% in many currencies.

TGR: In the last couple of years, the idea that the price of gold is being manipulated downward is no longer dismissed entirely as a conspiracy theory.

"Commerce Resource Corp. recently announced excellent drilling results at its Ashram rare earth deposit."

Douglass Loud: I wouldn't want to use the word "manipulation," but you could have an analyst predicting a gold price of $1,050/oz, followed by someone on the trading desk shorting it down to $1,050/oz, without any collusion.

TGR: How big a role does China have in setting the gold price? Continue reading "Supply and Demand Will Rescue Gold Soon" →