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Gold Prices: Shades Of 1979

Commentaries & Views

Gold has exploded on higher inflation data. Is this counter-intuitive? Higher inflation means a more aggressive Fed = higher rates = stronger dollar = lower gold prices, right? I think traders are perceiving that Fed is in a box. President Trump, after lambasting the Dems, for their budget deficits has already in his first year put plans in place and on the table that will increase the Federal deficit by $2.5 trillion dollars. It’s one thing to increase the debt when financing costs are at zero, but it is quite another when rates are grinding higher. So the Fed, as per its mandate, needs to raise rates to fight inflation; but what will that do to wealth appreciation especially in the equity and housing markets? It will create a collapse. So maybe the Fed lets the appreciation continue by staying behind in the interest rate curve and allow the bubble to grow through asset inflation. The sign that the Fed may stay behind the curve is in the forex market. Traders assuming an aggressive Fed would buy dollars but the dollar is dropping. We were constructive gold yesterday and remain so. Watch the $1,355 level for a break-out and a confirmation if gold can push through the double top of 2016 at $1,365. A break up here suggests our target of $1,425 laid out at end of 2017.

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Armillary Coin