Central Banks Fold. Buy Gold.
Markets have figured out that the world’s central banks are kicking off on a massive new stimulus effort, similar to the one from the post-2008 crash.
Except this time, the central banks are planning to stimulate way too soon… as in, before the looming next crash of 2019-2020.
Call it pre-emptive stimulus. Too much, too soon and without a good rationale…
It’s going to be a mess.
So, the dollar is declining and gold is moving up. And we’ve got a front row seat at what’s REALLY happening with money in America, and gold.
Let me back up for a moment. I studied geology in my university days. I worked as a geologist in the oil industry. I’ve followed hard-rock mining for many years. And I’ve been covering precious metals at Agora Financial for over a decade.
It’s been a couple of interesting decades for gold.
Starting back in January 2000, an ounce of gold fetched $280 an ounce.
Then, a funny thing happened. The world caught on (again) that gold is money. They don’t call gold “the once and future money” for nothing!
As central banks started tinkering – and word spread faster than ever with internet-wildfire – gold caught a bid. And in March 2008, gold hit an unprecedented $1,000 an ounce.
We all know what happened next.
Markets collapsed in 2008 during the financial meltdown. That’s when the Fed and other central banks poured gasoline on fiat currency, and lit a match.
Gold hit $1,900 an ounce in 2011, a stunning 578% return since January 2000. Heck, not bad for a so-called “worthless relic!”
And ever since 2008 we’ve entered a new era of Fed tinkering. A new normal for money in America and across the globe. Central banks and the U.S. Federal Reserve wield power with reckless abandon.
But since 2011, the gold market cooled off.
With the Fed raising interest rates the last few years it felt like the recession worries of 2008 were behind us. And a decade of currency manipulation was finally over.
Today, we know that’s far from the truth.
This month, the Fed is set to do an about face and cut interest rates. All the “strong dollar” talk was a lie. The Fed is folding.
Simply put: the future doesn’t hold a strong dollar, it holds strong gold.
So! With gold on the march to $1,500, and new highs right around the corner, let’s dig in to what’s going on.
First, don’t focus too hard on geopolitics. Sure, gold can spike on events, such as when Iran shot down that U.S. drone a while back.
But while geopolitics can move gold, that’s not the fundamental reason behind the current move.
The big news that’s moving gold is the sound of cracks opening in the global monetary dam. Figuratively, gold is beginning to leak through the dollar-dominated worldwide trade and banking setup.
It’s more than just geopolitics; not Iran, China or North Korea. And the gold move is not just “traders trading,” either.
The move is the beginning of something bigger. The medium/long-term is upwards. Gold is breaking out. Here’s why…
The world’s central banks are about to open the spigots. Lower interest rates go easy with what they call “money creation.”
Money creation? Seriously? The bankers just move a few strokes on the keyboard and voila, “money.” But it’s not true wealth creation. It’s not like issuing new “money supply” has grown more crops, pumped more oil, mined more copper, invented better computer chips or anything else.
No… What happens with easy money from central banks is that it flows near-immediately to the bankers and stock markets. In the U.S., money flows from the Federal Reserve to Wall Street, where shares get bid-up, out of all proportion to real growth in business net worth.
New Stimulus Looms
Across the world, many markets have caught on to the central bank scam. People are bidding up gold.
Gold buyers expect central banks of Japan, Europe, China and the U.S. (as in, the U.S. Federal Reserve/Fed) to open the valves.
To use bankers’ terms, stimulus and quantitative easing (QE) have now become part of the standard monetary tool kit.
Stand by for a monetary flood… Waves of liquidity sloshing towards Wall Street, not Main Street. It’ll lead to significant asset inflation.
Right now, people who hold serious money are seriously worried. So-called “real” interest rates are already falling fast; “real,” meaning nominal interest rates, adjusted down for inflation.
Most interest rates are already low. We’ve seen government bonds go to negative yield. And now, we even have junk bonds yielding negative.
Who is crazy enough to buy a junk bond at negative yield? Somebody, apparently.
The point is, as rates drop, the going gets better for gold.
Lower interest rates mean lower holding costs for gold. And as more and more interest rates go negative – meaning that bankers invite depositors to “save money just to lose” it – you’ll see a flood of panicked cash moving towards gold.
It doesn’t help that the world’s largest economy – the U.S. – is running record annual deficits and long-term debt during a time of no recession.
When politics and spending go way out of kilter – I’m sure you know what I mean – money moves to safety in gold.
Meanwhile, the economy at home, and economies across the world are slowing, per all manner of U.S. and international metrics. Which brings us back to gold.
People are buying, prices are rising.
Markets foresee a battle royale looming between an easing Fed and global central banks, and the contractive forces of an oncoming recession. And as recession bites in, government deficits and debts will move up even more.
The Federal Reserve and central banks are happy to squash interest rates and print money. It’s bad for money… bad for Main Street, but great for gold.
As the Fed folds, buy gold.
That’s all for now.
Managing Editor, Whiskey & Gunpowder