The USD And Gold Are Seeing Past Fed Chairman Powell's Smoke And Mirrors
Fed Chairman Powell addressed his faithful economist subjects in Jackson Hole, Wyoming to tell them that the inflation was caused by Covid. When they should all know it was the Free Money Era after the 2008 GFC and insane spending by politicians that caused it when they amped it up for Covid.
Of course the reason that they mischaracterized it as transitory was also due to Covid, not that their economic models are broken. There was no mention of the BLS revision that showed they had manipulated the employment number to the tune of 818,000 jobs that they admitted to. I still don’t believe that they have completely come clean on how much they really cooked the books.
You would think that this would be an important topic that should affect their economic models. Nope, it’s all good, their models are still pristine. Everything is ok folks, they are on a path to inflation reaching their goal of 2%. I still haven’t heard why 2% is the magical number, why not 2.25% or 1.75%, nope it is exactly 2%, based on measurements of inflation that suits their analysis.
It doesn’t matter what the real inflation is that consumers face whenever they go to the cash register or pay bills. It is solely about whatever measurement their changing of the goal posts is reading.
As he was speaking, I thought that this is all about economists trying to impress other economists. It isn’t really about the reality of how the Fed’s interest rate policies truly affect the economy. If the data doesn’t fit the policy, just change the data or blame it on something else. It is never their fault.
His faithful audience of adoring economists were like obedient lap dogs. But, the currency traders and gold took his smoke and mirrors presentation to mean one thing, interest rates are going into a cutting cycle.
Above is the 5-min futues chart of the USD index (from Finviz.com) and you can see precisely when Powell started to talk. They acted on the signal that rates are coming down rapidly and aggresively sold as you can see in the price action and volume.
While at the same time the gold futures 5-min chart (from Finviz.com) shows the opposite and reacted with bullish price movement on high volume.
These short-term charts are a precursor to what is coming when the Fed does lower rates. Next I will zoom out to the daily charts (from Finviz.com) that show a better picture of what is coming.
The USD index is clearly in a serious corrction over the past few months. It is making a very steep series of lower highs and lower lows. This is happening before the Fed pulls the trigger to enter into the rate cutting cycle.
The correction certainly doesn’t suggest that the cuts will be mild and short lived. It is most definitely signalling the rate cutting cycle will be steep and long lasting. The currency traders seem to be worried about a significant recession that forces rates back toward the Free Money Era.
While the USD is under serious pressure, gold is making higher highs and higher lows. Each new high is also a new record high, while the lows are mild and over quickly.
The long-term bull market is affected by powerful buying as central bankers in the BRICS nations are loading up on physical gold. They are putting themselves on the Gold Standard to protect against the Death Spiral of Debt.
Individuals in the East are doing the same and they are not flippers looking for a short-term trade. The people of China and India hold a lot of physical gold and they hold onto it for a very long time.
People in the west are starting to do the same thing, they are buying all the physical gold they can from big retailers and funds have also started to flow back into the gold ETFs.
In Closing
The Fed can spin things however they like to an audience of economists that believe their smoke and mirrors nonsense.
I’m happy to report that the investors aren’t buying it, they see through it and are acting in a much more intelligent way.
The trend in gold is our friend. The big gold miners have entered the gold bull market and next it will move down the gold stock food chain.
This action will ultimately result in generalist investors joining the gold bull market in a big way. Without a doubt they will also make things very bullish for gold stocks, from the highest quality major mining companies, down to developers and explorers.
All the best,
Allan Barry Laboucan
Disclosure
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