Hey There Income Hunters,
Hey There Income Hunters,
Before the open yesterday, I shared one of the most undervalued gold miners in the industry …
Let me remind you, this is a stock that RBC Capital just affirmed for a $68 target price.
Yet, yesterday AngloGold Ashanti Limited (Ticker: AU) made a new weekly low while the Relative Strength Index (RSI) — a very helpful momentum indicator — trended higher …
This confirmed what’s known as a “positive divergence,” which signals a higher move is possible.
I’ve rarely seen so many positive and negative divergences in one week.
It’s a classic sign of multiple cross currents in the market.
Check this out …
What is going on?
Well, like I keep saying nobody understands how inflation works…
Right now the inflation fire hose is clogged, meaning all the stimulus money flooding the system is trapped in the markets…
Which is creating larger and larger asset bubbles including stocks, bonds and real estate — all driven by historically low interest rates and massive amounts of cash flowing into the system …
And there is much more coming.
The pressure continues to build … And when it’s released, inflation will soar.
The most important thing that came out on this front yesterday was U.S. Treasury Secretary Janet Yellen shouting about needing more cowbell, er, I mean stimulus …
My point is, there is a perfect inflation storm brewing
The weaker economic numbers will actually force more stimulus … which only guarantees more inflation with very little growth.
It’s the very definition of stagflation: stagnant growth with inflation.
A Stock I Love
OK, here’s another stock I love. Warren Buffet actually bought it recently to hedge his portfolio from, you guessed it, inflation.
The company is Barrick Gold (Ticker: GOLD). (What an incredible ticker, by the way.)
Like all gold miners, Barrick has been correcting its uptrend since the March low for almost six months and I think we are close to the bottom.
Barrick may drift to $20 – $21, however, I am going to buy a half-position today.
Here’s My Trade
I am looking to buy a Jan-21, ‘22 20/30 call spread for a max loss of $310 and a max profit of $1,000.
I am confident that, by the end of Q3, inflation will be above 2.5% and heading higher …
At that point you will be thinking about where you should invest your pot of gold
Bring It Home
See, I think it’s the current general consensus that is missing the point on how the deflation/Inflation tug of war works …
Everything that is pushing precious metals down now just means more stimulus, which will create a greater explosion of inflation later.
Deflation is a short-term force that presents an opportunity to position for inflation, in this case during the second half of 2021
The inflation trade will turn around and move so fast that it will be hard to chase. So you don’t need to get in at the very bottom because it will be a blast off when it’s least expected.
Happy Friday everyone and enjoy the Super Bowl weekend … Go Bucs!! (They’re my adopted hometown team. It’s crazy down here in Tampa right now.)
And as always …
Live and Trade With Passion,