NEXT, PLEASE: Silver on the MAT – GOLD FLATLINING!

The Dollar’s Strength

Could Last Until September

The U.S. Dollar is following the path at which it traded in 2018. Back then, with the tariffs (which brought on a risk-off environment) and the Federal Reserve’s rate hikes on autopilot, gold bottomed in September, clinching an intra-day low of $1,180/ounce.

I remember it vividly because many fund managers and family office analysts told me that this would scare bulls for years to come.

Instead of flaking, I purchased 50 Gold Eagles for $1,200 each.

I’m glad I did…

We are approaching a similar set up in 2022!

The U.S. Dollar’s strength has broken the back of silver; because of oil’s recent slump, the inflation trade appears to be weakening, which is causing traders to sell their gold holdings.

The markets are clearly pricing the consensus that these strong jobs reports, like the one we had this past Friday, embolden Jerome Powell to carry on with rate hikes.

Three weeks from today, on the 27th, I expect the FED Funds Rate to be raised by 0.75%, which means that for the first time since the December 2018 Mini-Bear-Market tantrum, which saw the worst month of December since the Great Depression, the FED is moving to above neutral with interest rates, which will be between the 2.25% and 2.50% range.

The last time it happened, the S&P 500 fell 19.8% and Trump and Mnuchin had to call the heads of the largest banks and use the Plunge Protection Team.

We think that the markets have expectations built into them much better than in 2018; the FED has most definitely not been ambiguous about its plans and its priorities.

It has communicated and telegraphed, in advance, what its intentions are.

The FED wants to and will raise its FED Funds Rate as high as it can, without breaking the market’s expectations. We believe that it will be 3.00%, before the end of the year.

The Federal Reserve lags the market because of the way that it is structured.

The markets and its algorithms react to any news that comes in, but the FED compiles huge quantities of data and formulates one policy decision out of it all.

It absorbs the innumerable information points into one cohesive whole and speaks once a month, rather than make minor daily adjustments to everything it hears like the markets do.

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    It reminds me of how generals make large strategic decisions, while the soldiers on the battlefield make dozens of tactical ones.

    The markets understand that on September 30th, we are nearly guaranteed to learn that we’re already in a recession and, therefore, some are already beginning to price the end of this rate hike cycle, because stocks were up 4 days in a row last week, their longest streak in 2022 so far.

    The consensus in the market is that equilibrium will be found when the froth and excessive euphoria leaves the growth sector altogether, and the last resilient buyer out there is American housing.

    We are now seeing signs that they’re asking for discounts, not agreeing to any rate offered:

    Courtesy: Zerohedge.com, Bloomberg

    Gold sellers are anticipating the FED to stay hawkish for longer and take all precautions necessary to declare victory over inflation. The problem is that this is how markets are pricing over-tightening, which makes forecasted real rates turn positive…

    By late September, when we expect gold to finally bottom, it could trade in the $1,500s, while silver plays with the $17s, unless something changes over the summer months.

    Brace for impact!

    Best Regards,
    PortfolioWealthGlobal.com

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