Jerome Powell’s Jackson Hole speech sent the markets tumbling once again, but will he be able to back up his bold plans?

August 29, 2022

Dear Fellow Investor,

For one brief moment on Friday, investors thought Powell was bluffing.

After he began his comments from the Jackson Hole central banking confab, the algos quickly detected the hawkish nature of his remarks and started selling everything. The markets proceeded to plummet.

But then human traders, with their intuition and experience dealing with other humans, halted the slide with a flood of buying.

They thought Powell was bluffing.

However, it wasn’t long before the consensus view shifted for some reason, and hordes of both computer and flesh-and-blood traders renewed their selling. The markets started to tank once again.

By the end of the day, despite some attempts to fight the tide, the U.S. stock indices were deep in the red. The Dow lost over 1,000 points (again) and the Nasdaq had shed nearly 4%.

Gold lost nearly $20, or just over 1%, while silver gave up about 1.75%.

As you know, I’ve been consistent in my view that the U.S. stock market, despite the much-touted mid-summer rebound, was still due for more big sell-offs. The reason: I have yet to see the kind of capitulation that is necessary for a market to bottom.

Today the stock market started off with deep losses again, but has recovered somewhat as I write. If they end up in the green, then the same kind of buy-the-dip buying will have occurred…and that’s not capitulation by any definition.

So expect more weakness in equities.

For the metals, however, I’m encouraged by the performance of gold and silver today, which have been trading counter to equities. Both are essentially flat as I write, but spent some time in the green as the rest of the markets were diving.

In truth, a lot of the commentary last week revolved around the idea that gold has been performing miserably this year.

As you can see from the year-to-date performance metrics, that’s far from the case.

As far as protecting wealth, gold has been doing its job. Granted, this is relative performance, and everyone knows that, given the fundamentals and the macro environment, gold should be trading far, far higher.

But the combination of Russia’s invasion of Ukraine inserting a lot of noise into the market signals…plus the intervention of algos, hot-money traders and manipulators into the paper gold market…have worked to keep the price from trading according to fundamentals.

My view is that gold and silver are going to break these chains in the days just ahead, as the soaring costs of financing the federal debt will force Powell & Co. to stop hiking rates.

This is what some investors with longer-term views were thinking early on Friday. While they were proven wrong for the day, I think they’ll be proven correct eventually.

In short, the day of reckoning for the Fed is coming quickly. Once the central bank is proven powerless to defeat inflation, suddenly the fundamentals will look lousy for equities but outstanding for the metals.

Just a little more patience is required.

All the best,

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

P.S. As far as timing, I believe we’ll see the pressures on the Fed start to build in the October-November time frame…which coincides perfectly with this year’s New Orleans Investment Conference.

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