Wall Street Piling into Metals
Wednesday’s FOMC meeting and the Q&A session with journalists afterwards reminded me of the September 2018 through December 2018 period.
On one hand is the FED building sandcastles with dreams of finding the ideal interest rate to stay at for a long time until the economy cools before considering any cuts.
On the other hand is the bond market with its forecast that the FED is done raising and the first cut is coming in June 2024.
The FED is deathly afraid of the resurgence of inflation, not giving an inch and continuing its hawkish stance while journalists ask Powell about worker unions, strikes, a potential government shutdown, and other negative events that may warrant cuts in the near future.
Both sides are only in agreement that 2% inflation is no longer the barometer, but only the astute and brave already acknowledge that the days of 2% and lower are long gone.
The Federal Reserve is rushing to dump Treasury holdings in order to reduce its balance sheet in a world where U.S. debt is no longer being sought:
Courtesy: Zerohedge.com, Bloomberg
When Powell spoke about raising rates on autopilot in 2018, the market rejected the idea. In December 2018, we saw the worst one-month market plunge in close to 100 years!
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My point is that it seems very likely to me that the FED is bringing us closer to a policy mistake because the market is having a hard time understanding the hawkishness of the bank when it’s clear that inflation is not stopping over higher interest rates, so why would another rate hike change anything?
This chart is quickly becoming my favorite to explain the major upcoming move for gold!
Gold’s chart has been “boring.”
There is record-low volatility between gold buyers and sellers. What that means is that we will imminently see a big move either up or down.
Powell was asked about oil and dismissed the matter as a short-term scenario and not a long-term driver of inflation.
He was asked about labor strikes and was actually concerned. He stated that unions will become a force in the U.S. demanding higher wages as America reindustrializes.
He was asked about the “soft landing” likelihood and said the most profound statement of the meeting: he believes the FED has done all or most of what it can do, and circumstances that are not in the purview will decide if the U.S. economy enters a recession or not.
The market is left thinking two things after this meeting:
- The FED is handing it over to the market to decide what’s next. It wants to make minimal changes and believes that “higher for longer” is the path.
- It does think a recession is out of the question.
- It does not think that 2% inflation is likely to come back.
I don’t know how big will be gold’s next move, but I know it’s coming shortly!
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