It’s just two days until the Fed’s first rate hike — an event that history says should mark the beginning of a major gold rally.

March 14, 2022

Dear Fellow Investor,

A couple of days ago I advised you to ignore everything else in these crazy markets except for two things:

1) A big correction in gold whenever the Russia-Ukraine crisis resolved, and…

2) The Fed’s first rate hike, which should mark the beginning of a major new rally in gold.

The latter of those two events is now just two days away, as the Fed will announce its initial move on Wednesday afternoon. The only question remaining is whether they’ll raise the fed funds rate a quarter point or a half point.

As I’ve stressed, history shows that the first rate hike in a tightening cycle usually sparks a big uptrend in gold. The most recent and famous of these, which we predicted at the time in Gold Newsletter, came in December 2015.

Our readers reaped a huge windfall over the next six months as the price of gold rose and junior mining stocks soared.

Yes, I think that’s going to happen again this time. But first we have to endure another stab downward in metals prices.

A Big Sell-Off Today

As I write, gold’s off nearly 2% and silver’s down over 3%. These are big moves that don’t seem to be related to the crisis in Ukraine as, unfortunately, we aren’t seeing any significant good news from that front.

I think today’s weakness in the metals is due more to the expected pre-rate-hike volatility that we typically see in the run-up to the Fed’s first move.

For example, the 10-year Treasury yield is soaring today, jumping 12 basis points to 2.12%, and thereby easily clearing the 2.0% benchmark.

Although the Dollar Index is down solidly, I think gold is reacting to this big surge in the 10-year yield.

This means, of course, that we still have the big “post Ukraine” correction ahead of us, and this will complicate the picture tremendously. In other words, the trend probably won’t be as simple and powerful as we saw after the December 2015 rate hike.

Even if that’s not the case, the future remains bright for gold and related investments. The Fed may seem to be riding to the rescue, determined to do whatever it takes to stamp out inflation, but the fact is that they’re completely impotent.

Unlike the early 1980s, when Fed Chairman Paul Volcker was able to kill off inflation by raising Treasury yields above 15%, the federal debt is now 125% of GDP.

In 1980 it was just 34% of GDP, giving Volcker plenty of room to raise interest rates.

Today, Powell can’t get the fed funds rate much past 2.0% without triggering debt service costs of $1 trillion or more. There’s no way interest costs that high will be politically palatable.

Moreover, the financial markets will crash well before then.

Remember, Volcker willingly sent the U.S. economy into a steep recession to fight off inflation. With today’s enormous stock and real estate bubbles representing such a significant percentage of household wealth, Powell will have no choice but to turn back once the markets tell him to.

So the Fed won’t get very far into this rate-hike cycle. For its part, gold will rise as the Fed hikes…and it will absolutely rocket higher once they’re forced to retreat.

We’ll know a lot more in a couple of days. But from what we already know today, the place to be is in gold, silver and mining stocks.

All the best,

Brien Lundin
Editor, Gold Newsletter
CEO, the New Orleans Investment Conference