Gold Consolidates Ahead of Tomorrow's Brexit Vote

Gold is consolidating at the low end of the recent range on the eve of the Brexit vote in the UK. Polling continues to suggest the referendum could go either way tomorrow.

Société Générale global strategist Albert Edwards concurs that Brexit is a big distraction that has taken the eyes of many investors (and certainly the media) off of some more significant major problems (see yesterday's DMR). "There is an argument that global investors have overly focused on Brexit at the expense of other more important macro events," Edwards wrote in a recent note to clients.

The IMF cut their estimation of U.S. growth to 2.2% from 2.4% for 2016. They warned that growing economic headwinds and "pernicious secular trends in income" could slow growth for the long-term. The IMF also gave a nod to the current Fed policy stance: "At this point in the cycle, there is a clear case to proceed along a very gradual upward path for the fed funds rate."

Janet Yellen was back on Capitol Hill today for part-two of her semiannual monetary policy testimony, this time before the House Financial Services Committee. Ms. Yellen reiterated that negative rates are not being considered by the Fed, although as she stated yesterday, she believes the central bank does "have the legal basis to pursue negative rates."

Ben Hunt of Salient Partners disagrees. In his Epsilon Theory newsletter he revealed the following:

Major U.S. money market fund providers like TIAA-CREF have already announced plans to stop providing fee waivers as new regulations force fund type consolidation, which will create negative rates in the safe, liquid funds that remain. It’s baked in. It’s going to happen. — Ben Hunt

While a prolific writer, Mr. Hunt has a gift for summing things up succinctly. His warning about why we need to be concerned — very concerned — about ZIRP and NIRP is perhaps the most cogent argument you'll hear:

Just wait until the entire notion of compounding — without exaggeration the most important force in human economic history — is turned on its head and becomes a wealth destroyer. — Ben Hunt

Think about that for a moment. If saving money becomes a "wealth destroyer" — as it already has in some parts of the world — it will be a monumental sea-change. It will send savers scurrying for an alternative means to preserve their wealth. Perhaps the most logical option is physical gold. You'll want to get out in front of that rush.

In yesterday's Q&A session before the Senate Banking Committee, Pat Toomey of Pennsylvania asked Janet Yellen if she had considered that the long-term effects of zero percent rates might be negative . . .

Ms. Yellen answered, "No."

Be concerned. Very concerned.