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The appointment of Jerome Powell as new Fed chair is
likely the catalyst that ushers in a multi-decade era of rising inflation and
soaring gold stocks.
I’ve announced a long term target for GDX of $15,000.
That really isn’t very high… given the strong inflation numbers that I am
projecting for America in the years ahead.
Having said that, Powell has only been on the job for one
day. Investors need to show patience. Wait to see what he actually does
before taking “back up the truck” market actions.
Powell’s first significant actions are likely to be
announced at the March 21 Fed meeting. I expect a firm commitment to more
rate hikes and more quantitative tightening.
That’s inflationary because it boosts bank profit margins
and they become more willing to take lending risk. That produces a rise in
the velocity of money.
As the cost of borrowing rises, companies will raise
prices and workers will demand higher wages. If Powell also makes a firm
commitment to deregulating America’s thousands of small banks on or before
March 21, inflation would accelerate even more rapidly.
 
It’s my contention that wage inflation of 20%+ is not
just theoretically possibly, but morally justified.
Here’s why:
For many years, global governments have colluded with
central banks to run socialist/fascist QE programs. These programs moved
money from workers and savers to government bonds and stock markets.
Additional money was simply printed and taken.
QT, higher rates, and small bank deregulation are
beginning to re-empower Main Street. This is happening while “Government Street”
(the bond market and the dollar) and Wall Street risk disintegrating.
This is the exciting bond market chart. A head and
shoulders top pattern is in play. The neckline has been crushed.
Around the world, governments are announcing import
duties. That’s inflationary. If India’s government had cut the gold import
duty, it would have increased demand, but the duty itself is also
inflationary.
Institutional money managers are starting to focus on the
inflationary implications of Trump’s tax cuts that I highlighted when he
first proposed them. In the context of QT, rate hikes, and deregulation,
these cuts can increase inflation quite significantly.
The bond market is building what I have dubbed a “super
top” pattern. The target of the super top is about 80.
The Fed has projected that rates will take many years to
reach “normal” levels. This chart suggests the normalization process
will take about seven more years.
This “normalization” sounds great in theory. In the real
world, it involves a decline to 80 for the T-bond price. That would drive
borrowing costs for the US government to incredibly painful levels.
In addition, rates could rise much more quickly than
this chart suggests if Trump ordered T-bond creditors to take a haircut on
what they are owed. That’s one of his campaign promises.
As inflation surges, Trump may be forced to devalue the
dollar and revalue gold to prevent the US government from imploding or
becoming a full dictatorship. Inflate, default, or die. In the near
-immediate future, these are the only choices President Trump will have to
manage the US government’s horrific size, power, and debt.
The dollar could go into free fall if it breaks cleanly
under 108 against the yen, and the bear flag chart action suggests that
is going to happen very soon.
A breakdown would almost certainly correlate with a gold
price surge to about $1370. This is the daily gold chart.
There is a small head and shoulders top pattern in play
that could push gold modestly lower to the $1310 - $1290 area. The good
news is that a bull flag-like pattern is also forming that could negate the
top pattern.
Given the fast-growing inflationary fundamentals, gold
investors should now be walking the price gridlines with maximum confidence.
Fresh buying for eager gamblers and investors should be done at key levels
that I’ve noted on the chart.
Gold has been rising as the T-bond has fallen hard, and
rising as the T-bond has rallied. That’s because gold price discovery for the
fear trade is not about rates per se, but about risk. As stock and bond
market investors get rocked hard, gold looks like the ultimate asset iron
lady!
A major gold stocks versus gold bull era will occur as
the T-bond super top ushers in extraordinarily high inflation for the long
term.
Gold stock enthusiasts need to watch Powell’s actions,
because they are the catalysts that will push GDX above $26 and officially
begin that fabulous era. Gamblers can buy call options on a two-day close
over $26. I’ve urged long term investors to be aggressive buyers in my $23 -
$18 tactical accumulation zone. The bottom line is that it’s the cusp of a
new era for gold stock investors, and Powell officially launches it on March
21!
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