Are You Ready For $3000 Gold?
The big question on the minds of many market participants is will the Fed cut by a quarter-point or a half-point tomorrow? While the big picture story is that they are starting a rate cutting cycle, and it is much more important to understand why and how much they will cut during this cycle.
On the question of a quarter-point or a half-point, they have variables to consider. If they cut by a quarter-point, they can make significantly dovish comments during the press conference. If they cut by a half-point, they can cause panic as it will tell investors that they know they are behind the curve. Which will be accompanied by a collective oh-oh they see something bad that they aren’t divulging.
Another issue the Fed has to consider is that there will be six weeks between meetings, if they go with a quarter-point, they could have issues if the economic reports between meetings get softer than expected. Then they would have to cut rates between meetings just a few weeks before the election.
The trend in the jobs market is not good, and considering the time between meetings, they should go with a half-point and bite the bullet. They are playing with fire because the jobs market is signalling a recession is on the immediate horizon. My guess is they will probably go with a quarter-point and then make dovish comments.
I have been reporting for months that the trend in full-time jobs declining and part-time jobs increasing, meant that workers are losing higher paying full-time jobs to take on a couple part-time jobs for less money. Showing the jobs market is in a tough spot and by extension so is the economy.
Confirmation that the trend was worse than the Fed and politicians were trumpeting came when the BLS had to revise their numbers showing that over 800k jobs vanished from their previous reporting. This happened just before the Fed’s Jackson Hole conference, when Chairman Powell declared victory over inflation and sent the message that rate cuts are coming.
Jobs numbers after that didn’t look any better and the BLS had to revise additional months down. Which set in stone that the September meeting is when the rate cutting cycle will start.
Another thing I have been reporting on is that the USD has been trading like the traders feel that the Fed will be cutting rates back toward the Free Money Era and also crank up their balance sheet. With so much supply of debt being issued and buyers getting paid in a declining currency will cause them concern and make the Fed revive their role as the buyer of last resort.
The Fed dropped the “higher for longer” soundbite like a hot potato, when the BLS revised the jobs numbers down dramatically. They knew they could no longer go with the pitch that the jobs market was still strong. If the jobs market is weak, so is the economy.
Several months ago, Chairman Powell said that they didn’t want to wait too long and risk a severe recession and they didn’t want to move too early and risk inflation kicking in. That is a fine line and they left the decision until the last moment.
Now they have another problem. While jobs and the economy are slowing, the Death Spiral of Debt has gotten worse. Both of the candidates for president are big spenders and it will continue to get worse. Made even more troublesome is that servicing the debt is now consuming a big chunk of the income from taxes.
I’m convinced that the winner of the election will crank up the deficits to well over $3 trillion per year. Which means that the debt will grow to $50 trillion by the end of their four year term.
As that happens, people will start to realize that there are only two solutions to the Death Spiral of Debt. They are to default on the debt or go back on the Gold Standard. Either solution means gold wins.
Investors in the East and central bankers in the BRICS nations see the writing on the wall. I’m happy to see that some investors in the West are reading the writing on the wall as well.
Many market commentators that are gold bulls think that if gold goes up multiples from its current price that it will mean the world economy will be suffering from economic calamity. I disagree with this conclusion for two reasons.
The global debt crisis is very bad, and the sooner that all countries return to the Gold Standard the better. If that happens, it means that the Death Spiral of Debt can start to get healthier and gold will be multiples of its current value. And that gold will be the largest currency held in global central bankers reserves, plus gold will regain an important role in global trade.
Nothing could be better for the global economy. Other than if the politicians showed some fiscal restraint. They will never do that until they are forced too and that requires a return to the Gold Standard.
Gold is by far the soundest money, as time marches forward, more people will come to realize that is the golden reality.
In Closing
Both the USD index chart and the gold chart are showing us what is going to happen when the Fed goes into the rate cutting cycle.
The USD index chart has already fallen off a cliff prior to the Fed starting to cut rates. It is crashing while making lower highs and lower lows. This is telling us that the traders see a return to the Free Money Era and QE.
USD index chart courtesy of Finviz.com
Meanwhile gold is making higher highs and higher lows in anticipation of the Fed changing course on interest rates.
Gold futures chart courtesy of Finviz.com
If the Fed cuts by a quarter-point and makes dovish comments, initially upon the announcement the USD will go up. Then quickly people will realize that the dovish comments are suggesting things are worse than the Fed is letting on.
If they go with a half-point, the USD will drop and gold will rally higher. It will spook investors and they will realize the economy is slowing more than the Fed is indicating.
The trends in the USD and gold are very bullish for gold. Whichever choice the Fed makes, gold is on its way to $3000 by the end of this year or early in 2025.
By far the best reward for being on the right side of this trade is in high-quality gold miners, gold developers with impressive growth prospects and gold explorers with important discoveries.
Heads gold wins, tails gold wins.
All the best,
Allan Barry Laboucan
Disclosure
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