Not a Sight for Sore Eyes
I’m in the final stretch of my 3-week due diligence journey in France.
In Europe, two countries decide the fate of the union more than any other: Germany and France.
Apart from those, England, which has exited the union, is a major economy. I chose France and Italy this summer because of the fashion boom in Europe that mostly boosts their tourism, and I wanted to see how people were spending because all we hear about are recessionary expectations and the housing market freeze.
I will be leaving France to go back to Tel Aviv on Tuesday, and for this last week of my trip, I’ve been staying in Nice, one of the busiest cities in France and a major tourist hub.
I’ve seen St. Tropez, Antibes, Monaco, and Cannes. As luck would have it, the summer sale that typically begins on the second weekend of July (the 8th this year) has commenced on the final weekend of June (the 29th).
France is out shopping, and tourists are spending big.
There are families with children eating out at restaurants and lines outside Christian Dior stores. The beaches are packed, and the ferry boats are beyond capacity.
There is no recession.
That has surprised central bankers, policymakers, and investors alike.
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The diminishing odds of recession are only the first in several daggers to the heart of gold’s price. In March, the banking sector experienced a crisis, and many believed that the FED would be forced to pause and cut rates, but that proved to be extremely isolated in nature.
The next sword to swing towards gold was the Bank of England with its 0.50% hike even as the FED chose to do nothing in June.
Last week, in Sintra (Portugal), a crucial banking city like Geneva or Madrid, the heads of the FED, ECB, BOJ, and BOE were on a panel together to discuss policy, and I listened to the entire 90-minute Q&A.
None of them are considering any rate cuts. What’s even more interesting is they all agree that governments should consider the fiscal deficits and how they are keeping inflation with us…
That subtle criticism, along with the confidence that rates must remain higher for longer to allow the lag effect to fully kick in, have all put a real dent in the bull market thesis for gold.
It’s obvious that this is beginning to feel like the 2018 era when the FED talked about autopilot rate hikes and gold dumped to $1,180 at the lows in September (the last time I purchased physical gold).
I may acquire more Eagles if gold retreats further into the mid-$1,700s.
What seems to be the major difference is the labor market. Companies are extremely reluctant to let people go in order to cut costs and keep margins high!
People are employed, and that dynamic isn’t changing.
What that means is that even if mortgage payments are rising, grocery bills are high, and car payments have risen, households aren’t dumping assets or liabilities.
A recession won’t occur as long as unemployment remains low.
Rising rates, diminishing recession fears, low unemployment, and a raging stock market… gold just can’t rally in that environment. On Tuesday, I will both explain when gold could finally bottom and go over the 2023 portfolio and how it is performing thus far.
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