|
|
|
|
 Gold pushed higher in overseas trading on Monday, buoyed by a
weaker dollar and heightened Brexit worries. The yellow metal established a
new 4-week high at 1287.20, which leaves the range high at 1303.80 vulnerable
to a retest.
Whether that occurs or not is probably largely dependent on the tenor of the
Fed statement on Wednesday. It's pretty much a forgone conclusion that the
Fed will hold steady on rates, but the market wants to know whether July is
in play or not. It's not, but will the Fed maintain that the door is still
open?
The Fed's dual mandate centers on maximum employment and price stability. In
light of the terrible May jobs report and the well established downtrend in
the LMCI, they are failing on that front. Price stability according to the Fed
is inflation at 2%. Inflation remains below that target and inflation
expectations have turned lower as well; with long-term expectations setting a
new record low of 2.3%.
The Fed line used to be that inflation expectations were
"well-anchored". Janet Yellen made that argument as recently as
February, but I find myself wondering when the Fed will acknowledge that
things are becoming un-anchored.
On top of this there are heightened growth risks, which has been driving
investors into the perceived safety of bonds, even though they are paying a
dear price for little to no yield; and in some instances less-than no yield.
Never before have traders paid so much to own trillions of
dollars in debt and gotten so little in return. Jack Malvey, one of the most-respected
figures in the bond market, went back as far as 1871 and couldn’t find a time
when global yields were even close to today’s lows. Bill Gross went even
further, tweeting that they’re now the lowest in “500 years of recorded
history.” — Bloomberg
Bill Gross called the $10
trillion in negative yielding bonds a "supernova that will explode one
day." In a recent CNBC interview Jim Rickards noted that Wall Street
bailed out Long-Term Capital Management in 1998, central banks bailed out
Wall Street in 2008, and now he believes the IMF will have to bailout the
central banks when the next crisis hits.
"We have imploded twice in the last 16 years so get ready for the third
one," said Rickards. If it happens, central banks will be hamstrung
because they have been unable to normalize their balance sheets in the years
following the last financial crisis. The IMF has "the only clean balance
sheet left," he added.
If the IMF issues SDRs to provide liquidity and paper over the next crisis,
the dollar and most other fiat currencies are going to come under intense
pressure. In that environment gold will truly shine amid the broad loss of confidence
in fiat. Rickards pegs the "implied non-deflationary price of gold"
at $10,000.
Whether gold actually reaches that level or not the important factor. What's
really important is being assured that you have a sufficient number of ounces
in your portfolio in order to adequately protected your wealth. Because if it
gets to the point where the IMF is bailing out the world's central banks,
fortunes are going to be lost. They key is to have a physical asset that is
not correlated with the more traditional asset classes.
|
|
Read the rest of the article at
USA Gold
