In One Month,
Precious Metals Implode or Explode
I want to show why gold’s current situation is actually the worst for it and why the Federal Reserve could soon either create a massive gold rally or delay its bottoming for a very long time!
Gold thrives in an environment of negative real interest rates or after the central bank has begun hiking rates while inflation speeds up.
In other words, when the economy is recovering fast (while the FED does nothing to stop it) or when the economy needs to hit the brakes (but the rate of inflation is quick), gold does best, and right now is neither of these times.
At the moment, inflation is peaking and the FED is considering tightening, which is the worst combination for precious metals. Gold has been suffering badly for a whole year, as well as silver.
As you can see, the CPI numbers that Wall Street uses to make its assessments of gold and silver (asset inflation) and the real sentiment on Main Street, measured by the highly reliable University of Michigan survey, are worlds apart.
Courtesy: Zerohedge.com, Bloomberg
As you can see, it is not out of the ordinary for 1-year expectations (the red line) to explode after major recessions while the 3-year expectations remain much more tamed, but the real question is whether or not we have real “sticky” inflation this time and the red line won’t come down so fast!
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This is why it is such a unique period. On one hand, the FED is hinting that tapering is more likely than easing, which is what has decapitated silver’s price in 2021, but on the other hand, the delta variant resurgence and the fact that the consumer is expressing its dismay and forecasting slowing down economic conditions is making the probability of further cuts and more currency injections possible for the first time since May 2020!!
Courtesy: Zerohedge.com, Bloomberg
What’s interesting about today’s buying conditions is that the household demographics that are complaining about prices being high are not just the lower classes, but mostly the top third of earners.
This is a unique occurrence since the wealthier families are actually letting us know that buying a car, house, or consumer goods is not a wise choice at the moment.
Usually, such complaints are ushered when the economy is in a recession, not a recovery boom.
Lastly, I want to touch upon the topic of gold because this week it made a strong rally back!
Exactly 50 years ago, on August 15th, 1971, Richard Nixon went off the gold standard and essentially created the system we have today.
During the time that has passed, the FED has tightened on six occasions. The first two were in the 1970s, then in the 1990s, and they tightened in 2004 and between 2015 and 2018.
The average return for gold has been just shy of 30%. If repeated, this would send the price to $2,300!
What’s interesting and isn’t well-known is that rate hikes historically signal bottoms for gold.
Don’t dread the hike!
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