I Was Sent This Frantic Message

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No need to be alarmed; the price of gold isn’t plummeting, but I was sent this message yesterday, before the FED meeting, along with an attached chart. The sender told me that gold is insanely overvalued right now and that we’re about to see it go down to an abyss of $1,700, when the Federal Reserve continues raising rates into a recession.

I want to show you MY reply to him, because the chart he sent over does suggest gold has rallied too far too quickly, but only when you zoom out do you realize that the chart is FLIPPED!

Here’s the ominous gold chart:

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Courtesy: Zerohedge.com, Bloomberg

The chart shows a decoupling, which means a mean reversion process is about to commence. The fear is that because real yields are still positive, the price of gold has rallied without warrant.

As you can see, if yields remain at this level, gold’s price ought to be below $1,700, devastating the entire fabric of the rally.

Here’s what my reply was:

This chart is interesting, but one set of data never tells the full story. Indeed, they are decoupled, but your assumption is that real yields will stay where they are, causing gold’s price to be overvalued, if cash is still attractive.

I want to challenge that belief and actually suggest that you consider that yields have PEAKED and that we might have seen one of the last rate hikes.

If that’s true, yields are too high.

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Courtesy: Zerohedge.com, Bloomberg

The markets currently price three more hikes of 0.25% each and here’s where this gets INTERESTING.

The FED is telling investors that it will raise rates more than the level of inflation and that if it must cut, it will do so later on.

The markets didn’t anticipate this strategy; no one wants overtightening for the sake of it, just to loosen the screws later.

Since then, it has softened its stance, but what I think smart money is already factoring in is that inflation has not only peaked, but that it will start coming down – a healthy deflation.

It’s a contrarian view, but here’s what supports this statement:

Courtesy: Zerohedge.com, Bloomberg

If we look at the FED’s favorite yield measure, we can see it is at the SAME EXTREME it was in both 2000 and 2009, right before gold made insane upward moves!

At some point in the next quarter or two, the markets will become convinced that companies have fully adapted to the new regime.

We keep seeing layoffs, and the housing market is literally completely frozen.

With all of this, aren’t we to assume a drastic and monumental recession is coming?

I ended my response to him with this question and asked that he read the answer on this publication, so here’s my stance on the recession that I have heard is coming by all, as if every person in the world has now become a financial forecaster.

The recession has already begun – you’re in it.

If you’re waiting for the world to fall into the depths of the Great Depression, it has already in many ways.

Gold is rallying, not because a depression is coming, but because rates, inflation and the FED’s drastic measures are probably all behind us.

All of that translates into a weaker dollar and more gains for gold, which is already above its 2011 highs!

Best Regards,

Lior Gantz
President, WealthResearchGroup.com