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Dear Fellow Investor,
From Chairman Powell to the lowliest staffer, morale at the Federal Reserve has to be near an all-time low.
It’s bad enough when you work very hard at your job but are the target of enduring ridicule.
It’s bad enough when you carefully cultivate a reputation for independence, but are widely regarded as a tool of Wall Street.
But you’ve hit rock bottom when everyone thinks you’re at the beck and call of Donald Trump.
Yet that’s where we find ourselves, with the market actually expecting the Federal Reserve to cut rates at least twice this year...only a few months after they were hell-bent on raising the Fed Funds rate to at least 3.0%.
And many in the market — including our old friend James Grant — are expecting the FOMC to start the party with a quarter-point cut tomorrow.
Apparently the only people who aren’t on the rate cut bandwagon are the die-hard cynics or the hopelessly naïve. I don’t know which end of that spectrum I’m on, but I doubt they’ll cut tomorrow. I just don’t think the committee members could vote for a cut so soon and look themselves in the mirror.
With stocks within a hair’s breadth of all-time highs while Trump continues a barrage of tweets calling for cuts, a move tomorrow would shred any remaining pretense of Fed independence.
If they do cut, they’ll want to quickly run and hide from the backlash.
But it could happen. And a lot of people believe it will.
Gold Soars On Rate-Cut Speculation
Witness the surge in the gold price in overnight trading and early after the New York opening, as the spot price surged to $1,355...an impressive rally of about $17 that brought the price in the range of a key technical breakout level.
Some analysts chalked this rise up to expectations that the Fed was going to cut rates in current meeting, an interpretation that I called “a dangerous game” in a tweet this morning.
As I clarified in a follow-up tweet, my point was that “there are compelling longer-term reasons for gold to rise; investing on these short-term headlines is a fool's game.”
Sure enough, those who were trying to trade gold based on the headlines got burned again. President Trump tweeted this morning (coincidentally just as the U.S. exchanges opened for trading) that he had a phone call with Chinese Premier Xi to confirm an extended meeting at next week’s G20 meeting.
The U.S. stock market leaped to the upside on the news...and minutes later “someone” dumped nearly 30,000 paper gold contracts, about three million notional ounces, onto the market.
As analyst Dave Kranzler noted, that’s about 10 times the amount of gold available for delivery in Comex vaults — all sold over less than 30 minutes time.
Not surprisingly, gold lost nearly all of its gains for the day on that attack.
Bouncing Off The Mat
What is surprising, and very impressive, is the fact that gold has rebounded since that first attack.
As I write, it’s regained about half of those early gains, and is up about $8. Importantly, both silver and mining stocks are outperforming gold — which is a sign that gold is rising for the “right” reasons.
Those reasons are not the daily headlines or ever-shifting market assumptions. Instead, the reasons to buy gold are based on these undeniable facts:
• Sovereign debt loads are so great that the dollar and all fiat currencies must be debased over the long term.
• Since all currencies must be cheapened, they will be cheapened against gold and silver.
• In the interim, the Fed is prevented from hiking rates to anywhere near normal levels, due to the crushing debt-service costs that would result.
• And their only option will be to lower rates...and eventually return to quantitative easing and other extraordinary easing measures...to fight off economic malaise.
• Historically low to negative real interest rates will result, and will be tremendously bullish for gold and silver.
All of these factors will contribute to another long-term bull market in gold and silver, along with mining stocks.
That’s why we need to position ourselves in this sector now — and why we need to ignore the short-term headlines.
We can’t know the precise path the markets will take ahead, but we can know with a fair degree of certainty that we’ll want to own metals and mining stocks before we go too much further down the path.
One final note: I alerted you last week to the importance of attending this year’s New Orleans Investment Conference to discover how to find profits and protection during the volatile markets ahead.
I’ll give you another chance to beat the crowd and get the lowest possible rates on this year’s event. Just click on the link below.
All the best,
Brien Lundin
Editor, Gold Newsletter
CEO, the New Orleans Investment Conference
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