Gold isn’t behaving very well right now, but the tidal wave of spending on the way should float the metal to much higher levels.

January 18, 2021

Dear Fellow Investor,

Last week I showed how interest rates, in response to the prospect of an oncoming tidal wave of stimulus spending, had spiked higher.

And gold plummeted in response.

My key point was that this was a temporary, knee-jerk response. Eventually, this massive spending spree would lead to higher inflation.

And although the market response to these inflation signals would lead to a bumpy road for gold, that road would be heading higher.

This week, I want to give you an idea of just how much spending is heading our way.

A Mountain Of Money

I’ve been featuring the chart below for months in my presentations. The events of the last few weeks — and especially President-Elect Biden’s speech of last week — made it necessary to add the comments you see at the top.

Let’s take it from the beginning.

Remember when the Fed announced QE1 during the 2008 Great Financial Crisis? It was unprecedented — the central bank actually buying Treasuries and Mortgage-Backed Securities, and doing so at the mind-boggling rate of tens of billions of dollars a month.

Over the next year-and-a-half or so, the Fed added nearly $500 billion to its balance sheet!

Yet even that wasn’t enough. They doubled down with QE2, adding yet another $500 billion or so, in only half the time.

But things got crazier still. The Fed felt it had to announce QE3 — unlimited quantitative easing — lasting as long as necessary and to whatever degree necessary.

This was full, pedal-to-the-metal currency creation. And by the end of it, an amazing $1.5 trillion had been added to the Fed’s balance sheet.

This had gone from mind-boggling to mind-numbing. A level of Fed intervention that was completely unprecedented in both concept and degree. Surely, we’d never see anything like this again?

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Cue The Pandemic

Then came the Covid-19 pandemic and the global economic shutdown.

Now, ever since the Fed had begun its aborted campaign to “normalize” rates after its years-long quantitative easing and zero-interest-rate policies, I had been very vocal in saying that they would have to return to QE.

At some point, I predicted, the markets were going to force the Fed to start lowering rates again and even restart QE.

And in fact, the Fed started doing just that in late August of 2019.

But then the pandemic forced them to take everything to an entirely new level. As you can see from the chart above, the Covid-19 QE dwarfed anything seen in the response to the Great Financial Crisis.

In only a matter of a few weeks, the Fed had duplicated everything it had taken years to do post-2008.

But now it’s getting really crazy…

Stimulus On Turbo

Consider those two comments I added to the chart.

Late last year, President Trump signed a last-minute stimulus bill adding another $900 billion to the spending.

That’s not chicken feed. But then last week, Biden trumped Trump with his plans to add yet another $1.9 trillion in stimulus!

In the span of just a few weeks, the entire Covid stimulus effort — which itself had shattered every previous record — was essentially doubled.

We need to face the fact that there isn’t a shred of fiscal prudence left in Washington. It’s very likely that even Biden’s plans are merely a down payment on what’s to come.

And this is why we need to remain bullish on gold.

Quite frankly, I’m not pleased with gold’s performance in recent days. Rather than finding reasons to rise, it’s been finding excuses to fall. And that most definitely is not how an asset behaves if it’s in a bull market.

So I’m not bullish for the near term.

But given the tsunami of spending on the way, and the fact that sentiment for gold is bottoming, I’m confident that we’ll see much higher prices for gold and silver this year.

The key is to keep our eyes on the prize…and the repercussions from the massive spending spree just ahead.

All the best,

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