As I was preparing to watch Fed Chairman Powell’s press conference earlier today, I had a feeling it would be an important meeting for gold. I certainly wasn’t expecting him to be so dovish.
After the Fed statement that they were continuing to pause, gold reacted in a bullish way. Then it softened a bit when he made his comments explaining why they were standing pat on rates. When they opened things up for the media to ask questions gold went on another run higher as Powell was clearly dovish when asked about future rate cuts.
I wasn’t the only one that noticed a softening tone regarding rates. Once they opened it up for the reporters to ask questions, they started asking if the Fed was considering lowering rates. They were like a dog on a bone and kept asking about rate cuts for almost the entire question period.
In the past when he was asked these kinds of questions, he would get a scowl on his face and dismiss the questions as if they were stupid questions. Not so much this time.
His answers were much more tempered and he admitted that it is something they are considering. I don’t think it was a coincidence that this change in posture toward rate cuts comes on the heals of Janet Yellen assuring folks there was no need to worry about the debt, be happy.
Jim Cramer is famous for making horrible stock calls that consistently go in the opposite direction of his predictions. Janet Yellen is the Jim Cramer of economists. Whatever she says, you can go in the opposite direction and be much closer to the truth of the matter.
I think there is more to her comments that we don’t need to worry about debt. It is a tell she is worried and hearing questions on the debt daily.
Powell certainly didn’t say it out loud, but I’m sure he and other members of the Open Market Committee are worried and not happy with the death spiral of debt.
Politicians can take part of the blame for the death spiral of debt due to their chronic spending. They rarely agree on anything, but what they all agree on, whether on the left or the right is to increase spending and consistenly make a mockery of the debt ceiling.
Shortly after raising the debt ceiling, they rapidly increased debt by a couple trillion to now have it at $34 trillion and rising at an alarming rate. While also increasing the deficit like it means nothing. Well debt and deficits do mean something, as can be seen in the cost of servicing the debt which is now $1 trillion and higher than military spending.
Equally to blame is the Fed who came up with the brilliant idea to combat the 2008 economic collapse by lowering interest rates to near zero and keep the Free Money Era going until 2022. Then, in a series of panic moves, they jacked rates up rapidly to fight the inflation they caused during the Free Money Era.
One doesn’t need to be an economics genius to realize that out of control debt growth during the prolonged Free Money Era, followed by expensive money, would create a death spiral of debt.
Something else that surprised me during the question period at Powell’s press conference was when he mentioned that the members of the Open Market Committee write down their expections for rates on a piece of paper. In past press conferences he was pretty open about their predictions. In this one, he said that more are considering when a rate cut will happen without giving more details about the consensus.
The most surprising comment from his press conference was when he was asked if they would wait until inflation gets down to their target. I thought I was hearing things when he answered by saying if they wait until then, it will be too late.
It was very clear that the winds of change are happening at the Fed, the hawkish comments have abruptly stopped and switched to a dovish stance.
To me, there are key drivers for gold to focus on. One is the death spiral of debt, made worse by the high interest rates after the Free Money Era. Another is the direction of the US dollar as that is the most followed price by gold buyers and gold stock investors. Where interest rates go, so goes the US dollar and by extension gold usually goes in the opposite direction.
The Fed’s tightening has been very supportive of a strong US dollar. Surprisingly, gold has shown a lot of relative strength during the Fed’s tightening as it is at record prices against practically every global currency. Now it has new record highs in its sights against the US dollar.
The currency traders are seeing that the Fed is done tightening which will create a headwind for the US dollar. This has been bullish for gold as it had its first monthly close above $2000 in November. Followed by the highest daily close on the first day of December which landed on a Friday. Then on Sunday, December 3, when the futures market opened it reached its highest price on the futures market.
It gave back some of those gains, until today when Powell turned into a dove concerning interest rates. As gold was moving higher, the US dollar was dropping. I think this is a seminal moment for gold and the US dollar where the US dollar will get weaker and gold will get stronger.
These trends will continue as more people come to realize that the death spiral of debt is a massive problem, that was caused by spending crazy politicians, and a Fed that fueled their spending addiction with the Free Money Era.
Shortly after the Fed presser, I did a live podcast on Twitter/X Space discussing these topics and more. Including a discussion about how I see a more dovish Fed helping gold which will bring gold stocks to life. You can find it here.
All the best,
Allan Barry Laboucan
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