Last week's Maven Letter had two portfolio suggestions. I recommended buying a gold explorer that just got drills turning on a never-before-drilled target that offers all kinds of prospective evidence. Then I suggested selling a small miner that has outperformed expectations and its peers, but where signs of changing momentum meant it was time to take our 300% gains and move on.

The editorial, included below, looked at the fear that pushed gold up through US$1,300 per oz. and the reasons why gold will likely fall back again before resuming its rally.

I hope you had a good Monday!

Rising on Fear (from Nov 2nd, 2016)

Gold just broke back up through US$1,300 per oz. The metal’s strength over the last few days shows gold doing its usual duty: acting as a safe haven.

And the needs for safety are many:

• The US stock market is looking more set for a breakdown every day. Technical weakness is now apparent in market charts, such as the S&P 500 chart below. Key support was 2120 and we broke down through that yesterday.
  
  
• The yield curve looks to have bottomed and started upwards. We are seeing flat yields on short-term treasuries versus rising yields on long-term notes, which is a recession indicator. The situation right now looks inflationary – or at least looks like speculators think inflation is coming and are positioning by seeking refuge in assets with defined long-term value. Either way is good for gold.
  
  
• The US dollar has been flat for 18 months despite a bull run in US stocks, which is an unsustainable divergence in general. In recent days the dollar has looked weak, ending another upwards push.
  
  
• US earnings have fallen below 2012 levels. This divergence is hard to ignore.
  
  

Those are some of the reasons to seek safety. The US election is another and the list goes on.

In this moment, it is easy to want to believe the gold rally of the last two weeks is the start of the next leg up, and I will admit that breaking up through US$1,300 per oz. is significant. However, do not underestimate the impact of the December Fed meeting.

Today we got further evidence that Janet Yellen will raise in December: in its November statement, the Federal Open Market Committee focused on job gains, rising household spending, and the idea that the economy is going to just keep chugging along. “The Committee judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress towards its objectives.”

In other words: we couldn’t hike this close to the election (and nobody expected us to anyway) but we damn well will in December. Consider yourselves warned.

Gold will decline going into that meeting. Two weeks ago I said most gold corrections following a sharp gain are W shaped. The current lift is looking like the ascent to the middle peak. Another slide into the December rate meeting would take us down to the second low.

And then we will be good to go.

• Gold started to gain just two weeks after the rate hike last December and went on to add 25% to its value. Once this year’s hike is over, the pattern could well repeat.
• As 2017 starts a large new group of investors will be able to start investing in gold. The World Gold Council is working with the Accounting and Auditing Organization for Islamic Financial Institutions – which sets the standards of Islamic financial law – to set up avenues for Muslims to invest in gold. Islamic law bans trades deemed immoral, so Muslims are not allowed to invest in, for example, alcohol stocks. Until now, the ban has also applied to gold. That is what is about to change: at the start of 2017 a new standard will allow Muslims to invest in gold, a commodity with special importance in Islamic culture. The change will allow 1.5 billion people and 32 central banks to buy gold, after having been banned from doing so for over 40 years.
• All the rest of the fundamental gold drivers I talk about endlessly, from ballooned government and corporate debts to the lack of security or value in equities to negative rates in much of the world to the self-fulfilling prophecy that a rising gold market creates.

The W is playing out. I have several stocks to recommend before the gold market really goes again. Right now election uncertainty is driving scared investors into gold. That’s helping in the moment, but the fundamentals don’t care whether Donald or Hilary wins. Gold is set to go either way.