The following commentary is provided by Peter Hug of Kitco, highlights are my editing:
The asset feast on cheap, almost free money is nearing its end.
Tinkering with interest rates to build a fake inflated economy is a fool's errand.
Yet there are many fools it seems in charge of monetary policy and fiscal policy. Politicians, their Lobbyists, and Central Bankers are the trinity of economic evil these days.
How such a party will come to a happy ending is beyond our comprehension, yet most decision makers wish to live in an Alice in Wonderland world of make believe.
Interest rates rising and gold rising hand in hand, it is a paradox. Or is it?
Isn't gold the thermometer telling us if the economy is ill and running a fever, or healthy and remaining subdued?
If so, the patient is very ill and getting sicker every day.
We can see a big adjustment coming, probably on a scale eclipsing the 1981/82 recession as the bond market implodes as rates rise.
The recent blow up of inverse volatility ETFs and ETNs was a warning that there is far too much leverage in the market which is likely to generate some ugly contagion in the stock market.
Cash and gold seem like the logical sanctuaries as this negative environment continues to develop.
Gold has exploded on higher inflation data. Is this counter-intuitive? Higher inflation means a more aggressive Fed = higher rates = stronger dollar = lower gold prices, right? I think traders are perceiving that Fed is in a box. President Trump, after lambasting the Dems, for their budget deficits has already in his first year put plans in place and on the table that will increase the Federal deficit by $2.5 trillion dollars. It’s one thing to increase the debt when financing costs are at zero, but it is quite another when rates are grinding higher. So the Fed, as per its mandate, needs to raise rates to fight inflation; but what will that do to wealth appreciation especially in the equity and housing markets? It will create a collapse. So maybe the Fed lets the appreciation continue by staying behind in the interest rate curve and allow the bubble to grow through asset inflation. The sign that the Fed may stay behind the curve is in the forex market. Traders assuming an aggressive Fed would buy dollars but the dollar is dropping. We were constructive gold yesterday and remain so. Watch the $1,355 level for a break-out and a confirmation if gold can push through the double top of 2016 at $1,365. A break up here suggests our target of $1,425 laid out at end of 2017.My view:
The asset feast on cheap, almost free money is nearing its end.
Tinkering with interest rates to build a fake inflated economy is a fool's errand.
Yet there are many fools it seems in charge of monetary policy and fiscal policy. Politicians, their Lobbyists, and Central Bankers are the trinity of economic evil these days.
How such a party will come to a happy ending is beyond our comprehension, yet most decision makers wish to live in an Alice in Wonderland world of make believe.
Interest rates rising and gold rising hand in hand, it is a paradox. Or is it?
Isn't gold the thermometer telling us if the economy is ill and running a fever, or healthy and remaining subdued?
If so, the patient is very ill and getting sicker every day.
We can see a big adjustment coming, probably on a scale eclipsing the 1981/82 recession as the bond market implodes as rates rise.
The recent blow up of inverse volatility ETFs and ETNs was a warning that there is far too much leverage in the market which is likely to generate some ugly contagion in the stock market.
Cash and gold seem like the logical sanctuaries as this negative environment continues to develop.
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