A 'Shocking' Announcement From the Federal Reserve
A 'shocking' announcement from the Federal Reserve... What a rate hike would mean for gold... A boom in junior gold miners... A powerful tool for today's uncertain markets...
Another interest-rate hike is back on the table...
At least, that's what Federal Reserve officials want us to believe today.
According to the minutes of the Fed's April meeting, released yesterday, most Fed officials believe it "appropriate" to raise short-term rates again at the next meeting in June.
As Wall Street Journal columnist Jon Hilsenrath – who has long been considered the Fed's unofficial "mouthpiece" – reported Wednesday...
Federal Reserve officials sent skeptical investors a sharp warning Wednesday that an interest-rate increase is still in play for June's policy meeting if the economy keeps improving.
Until a few days ago, traders in futures markets saw almost no possibility the Fed would move short-term interest rates up at midyear. However, a batch of strong economic data, recent comments by Fed officials and a new release by the central bank on the deliberations at its last policy meeting have changed that perception.
Fed officials concluded a rate increase in June was a distinct possibility when they last gathered to discuss the economy, according to minutes of their April 26-27 policy meeting released Wednesday afternoon.
Yesterday's announcement followed similar statements from three different Federal Reserve officials on Tuesday. San Francisco Fed President John Williams, Atlanta Fed President Dennis Lockhart, and Dallas Fed President Robert Kaplan all suggested another rate increase could be coming in June.
Today, Richmond Fed President Jeffrey Lacker went even further...
In an interview with Bloomberg Radio this morning, Lacker said markets "took the wrong signal" from the Fed officials' earlier statements, and "overestimated how likely [they] were to pause for the rest of the year." He said there is a "strong case" to raise rates in June and even said he would be "comfortable" with four total rate hikes in 2016.
Clearly, the Fed is trying to send the market a message. And it appears to be working...
Following yesterday's release, the anticipated probability of a June rate hike jumped to 34% from just 4% a few days ago, according to futures markets.
This latest reversal shouldn't surprise regular Digest readers. We've been covering the Fed's flip-flopping stance for months.
While the Fed claims to adjust policy based only on economic data like jobs and unemployment, GDP growth, and inflation – all of which are at or near the Fed's long-held targets – that doesn't seem to have been the case.
Instead, Fed officials appear impulsive and emotional, getting "hawkish" when the market rallies and "dovish" when it falls. We don't expect that to change anytime soon.
In the meantime, barring a sudden downturn in the government's official data or a stock market crash in the next few weeks, we wouldn't be surprised if the Fed does increase rates by another 0.25% next month.
Most markets declined following the announcement...
U.S stocks, along with gold, silver, oil, and other commodities, fell while the dollar rallied. This trend continued today.
U.S. Treasurys – which could be hurt the most by higher rates – fell following the announcement, but are rallying today.
Some readers have asked if a June rate increase would change our stance on gold and silver.
The simple answer is no...
Gold is rallying for a number of reasons, including negative real interest rates.
As we've explained, "real" interest rates are simply interest rates minus inflation, and negative real interest rates are one of the biggest historical drivers of gold prices.
While the Federal Reserve has not (yet) pushed nominal interest rates below zero like the central banks of Europe and Japan have, real interest rates in the U.S. are already negative, too. Another rate increase won't change that.
After all, the latest gold rally began after the Fed raised rates for the first time in a decade last December. Why should a second 0.25% rate hike cause it to end?
Gold and silver rallied 20% and 28%, respectively, to start the year. Gold and silver stocks soared multiples higher. And investors are starting to get excited about the sector for the first time in years. It would be normal and healthy to see the sector pull back here.
If this week's decline is the beginning of a real correction (and of course, there's no guarantee that it is), we will get more bullish, not less.
We believe this bull market has much further to run, and we'd love the opportunity to add to positions at lower prices.
Stansberry Resource Report editor Matt Badiali agrees...
As we've shared, his subscribers have already seen two triple-digit winners this year as major gold miners have bought out their junior gold-stock holdings. But Matt believes this trend is likely just getting started.
He shared his latest thoughts on the "boom" in junior gold miners in yesterday's edition of our free Growth Stock Wire e-letter...
The mad scramble for junior gold miners is on.
As the gold price fell from 2011 to 2015, major gold miners struggled to turn a profit. Years of rising gold prices left these companies with high costs. Once gold prices fell, they had to find ways to cut costs, starting with capital budgets.
Mines that were once the future of these companies proved to be too expensive to run. Newmont Mining (NEM), for example, closed its Hope Bay mine with a multibillion-dollar write-off in 2012.
As the bear market dragged on, the big miners ran through their reserves. After four years, it became critical for these companies to find new sources of gold.
One way for gold majors to cut operation costs is by acquiring low-cost, high-quality assets. We've seen a flurry of these acquisitions across the sector since late last year. And they give investors the chance to make quick, triple-digit gains.
Matt explained that the "buying spree" began quietly last summer, when OceanaGold (OGC.T) bought Romarco Minerals...
Romarco owned the Haile Gold Mine in South Carolina. Financial analysis of the project showed that it would be extremely profitable. The estimated cost to mine the gold was $477 per ounce. The total cost to run the mine and the company was just $624 per ounce.
That meant Haile was a robust business, even with gold prices around $1,050 per ounce at the time. With the price of gold up to nearly $1,300 per ounce today, OceanaGold's decision to buy it looks brilliant.
Since then the pace of acquisitions has picked up. Five big deals have already been announced this year, and more are likely to follow. More from Matt...
Acquired Acquirer
Value^
YTD Return
Kaminak Gold Goldcorp
C$520
191%
Claude Resources Silver Standard
C$337
188%
True Gold Mining* Endeavour Mining
C$226
179%
Reservoir Minerals Nevsun Resources
$365
118%
Lake Shore Gold* Tahoe Resources
C$945
86%
As you can see, these acquisitions helped to drive the stock prices much higher. The average return in 2016 from the five deals announced this year is 152%...
It's a bull market. But it's not too late to make a lot of money in mining stocks. If you aren't in yet, consider buying today.
Speaking of gold, we've shared how Steve Sjuggerud's "Magic Number" system has identified every major move in gold, as well as in dozens of other markets.
But this system isn't just about hitting "home runs" – though Steve's long list of triple-digit winners over the years shows it does that well.
It's also a powerful tool for today's uncertain markets...
Most folks approach the market one of two ways...
Many consider themselves primarily long-term investors, and for good reason... Buying high-quality, capital-efficient or World Dominator-type stocks at the right price is one of the simplest and surest ways to build wealth over the long term.
But finding these opportunities is getting more and more difficult today.
Others consider themselves short-term traders. They're happy to buy and sell more frequently to earn small, consistent profits that add up over time. This approach can be very profitable, but it requires more effort.
Traders must watch the markets more closely, and they must be extremely disciplined to keep their losses small... Even one big loss can wipe out weeks or months of profits.
Because Steve's "Magic Number" system is an "in between" approach that combines some of the best features of both investing and trading. It combines the hands-off, high-upside approach of long-term investing with the defined risk and quicker profits of trading.
This means you can ignore the stress of watching the markets each day, but you can make a lot of money, quickly... often as much as twice what the overall market returns over the same period.
Regular Digest readers know we believe everyone should "hedge" their portfolios with plenty of cash (and gold) and some short sales today.
But we've also warned folks again and again not to get too bearish too soon, just in case the rally goes on awhile longer.
If you're looking for low-risk, high-upside opportunities for new money today, Steve's Magic Number system could be a perfect fit.
In fact, once you try this approach, you may be tempted to give up traditional investing and trading altogether.
Why? Because Steve's research shows this approach can actually beat the long-term returns of any other strategy... including those of legendary investors like Warren Buffett, George Soros, and Carl Icahn.
We know... It sounds far too good to be true. But Steve says the data is irrefutable. Click here to see for yourself.
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New 52-week highs (as of 5/18/16): none.
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Regards,
Justin Brill
Baltimore, Maryland
May 19, 2016
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