Dare to Think about $2,100
This past week, two major events happened that are extremely important for the gold sector.
They’re so fundamental to the future price of gold that we must first look at them closely and understand their critical significance.
The first of them is the revelation that the U.S. economy is officially entered a recession.
It was almost inevitable that we enter a recession, since the previous quarters were some of the highest-growth GDP eras in the past 60 years, so I wouldn’t call this recession a deep and systemic depression, but the algorithms don’t care about the nuances… it cares about numbers.
I don’t like beating around the bush and that’s what Biden and Yellen are doing… it would be much more productive to tell the American people that the numbers don’t lie, but that they’re not surprised by this, since it followed the biggest GDP prints in decades, to add context.
Biden rhetoric or not, a recession means that the dollar index is probably going to peak shortly, if it hasn’t already and that is crucial for gold.
As you can see below, the FED’s confidence that they’ve done a fair amount of frontloading rate hikes, while shared by many on Wall Street, has still not fully translated into tamed inflation, because the PCE, which the central bank considers to be more accurate than CPI, is still showing 1982-era highs!
Jerome and Joe, the numbers don’t lie… don’t massage them:
Courtesy: Zerohedge.com, Bloomberg
Once the GDP numbers came out, the market immediately turned on their consensus of 6 more rate hikes and slashed their forecast by 0.50%, enough to send gold up by nearly $100 already!
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What’s incredible is that the giant-tech companies that comprise the bulk of Wall Street’s barometer (AMZN and AAPL) both reported incredible earnings, during a recession, while the global geopolitical situation is in chaos, despite the most challenging logistics crisis in decades and gives me hope that businesses have weathered the big storm quite well… more reasons to continue to stick by our stance that a soft landing is doable.
Investors keep thinking real estate is going to crash by a kamikaze airplane, but months go by and still no real sign of a dismal crash, so between the technical recession and the very robust jobs market, the FED doesn’t need to keep hiking aggressively into a recession!
The 2nd major event that happened on Wednesday was the FED interest rate hike and the subsequent Qַ&A session, because it revealed that the FED no longer believes it is chasing inflation.
The Federal Reserve has managed to quickly and aggressively bring interest rates to over 2.25% and the world didn’t end…
What I’m seeing is that for the first time in 13 years, the default mode of paying excessive prices for growth, because interest rates are zero-bound, is gone.
This also tells me that bonds will outperform stocks, a classic sign that gold will outperform both!
If you look at the chart below, you’ll see that between 2000 and 2003 and between 2009 and 2011, when bonds provide higher gains than stocks do, gold and silver HAVE THEIR BEST years.
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