USD Is In A Sucker's Rally While Gold Is In A Powerful Gold Bull Market
The US dollar (USD) is trading like the Fed is one and done on the rate cutting cycle. At the moment the USD bulls are believing the Fed’s Goldilocks pitch and that a Trump win will be bullish for the USD.
Meanwhile the jobs market is weak, with full-time jobs in decline for many months as part-time jobs increase and are filled by workers that had full-time jobs and a surge of immigrants. Plus, the government has gone on a hiring spree to prop up the jobs numbers. It is all smoke and mirrors that is not the making of a strong jobs market as the Fed tries to pitch the plotting dots.
Right on cue debt is surging making the Death Spiral of Debt worse, and the next president will add fuel to the debt crisis fire. As more ultra-wealthy investors are turning into increasingly more vocal gold bulls are highlighting their argument for gold based primarily on the debt crisis.
The Fed knows there are cracks in the jobs market that will cause a slowing economy, which is why they went with a half-point cut after a prolonged period of trying to fight the inflation they helped cause. The yields on the bonds aren’t cooperating with their rate cutting cycle, which means if they want to keep cutting they will have to manage the yields with their balance sheet.
This brings up two issues for the Fed. One is what to do about the reality of the jobs market, that if you ask any worker if the jobs market is strong while they lose a full-time job to take on a part-time job or two will tell you that it is brutal. Secondly, the debt keeps growing on an unsustainable path made worse by the growing cost of servicing the debt.
The key driving force behind the powerful gold market is the Death Spiral of Debt. Which is on autopilot as politicians can’t help themselves from spending like drunken sailors which has caused it to reach a point that servicing the debt is consuming a big chunk of income from taxes.
If investors think that politicians will slow down their spending then they should be short gold. The chances of the politicians doing the responsible thing to cut spending is zero. Both VP Harris and Trump have shown everybody their prolific spending ways. Which is why ultra-wealthy investors are becoming increasingly vocal gold bulls.
Neither one is even talking about the debt crisis or what they will do about it, so they are like the drug addict that hasn’t realized they have a problem. Which means that as soon as either one wins the election, they will be massive spenders. I’m 100% convinced that whichever one wins, they will do everything they can to make the next term a record for spending that drives the debt to $50 trillion during the next four years of their term.
With interest rates where they are, and the growth in the debt, the costs of servicing the debt will get much worse, which is ultimately the straw that breaks the camel’s back. Which puts the Fed in a spot where they either keep rates close to where they are and cause havoc for both the economy and the debt crisis.
They can talk all they want about a Goldilocks economy that they have perfectly managed to for the first time in history orchestrated a no-landing. But talk is cheap, actions speak louder than words and their action was to enter into a rate cutting cycle.
The USD traders are trading as if the Fed is one and done with rate cutting. But, the debt crisis and the jobs market, as well as the Fed entering a rate cutting cycle don’t align with a one and done scenario.
As is always the case, we live in interesting times when it comes to the markets. The USD index has been on a powerful run over the past few weeks, which should make gold weak but it keeps setting new record highs.
This run in the USD looks extremely overbought and ready to enter a serious correction that takes it under 100 on the USD index. It sure looks like a sucker’s rally to me, pumped up by the trend in polls that are suggesting a Trump win which investors believe will be good for the USD. Plus, that the Fed is one and done.
Trump will be a massive spender and his tariff policies will make inflation kick in which will slow the economy. And despite the Fed folks talking up the Goldilocks scenario, the reality is they went with a half-point cut because they know there are issues with rates being as high as they are and want to bring them down.
I don’t think the USD and gold will stay in a bull market. The bearish arguments for the USD are piling up while the Death Spiral of Debt will keep fueling the bull market in gold. Just ask Ray Dalio, Stanley Druckenmiller, Muhamad El-Erian, Paul Tudor Jones and others why they are gold bulls.
They got rich because they are constantly ahead of the trends, investors would be well served to follow them into the gold bull trade.
All the best,
Allan Barry Laboucan
