With current fed policy of no interest rate hikes, banks have no incentive to make loans, and treasury bonds (T-bonds) are now the asset of choice. The T-bond money is squandered by governments, and money velocity implodes. The bottom line is that bank and government wealth is inflated by quantitative easing (QE), and the wealth of the average person is massively deflated.
“QE to infinity” is better described as “deflation to infinity”.
When Leman Brothers collapsed in 2008, US money velocity peaked, and the markets could have entered a multi-decade bear market. This event resulted in the Fed forcing savers out of the banks and into risk markets.
With the advent of the QE programs, the government became an ever-bigger part of the global economy and productivity has also entered a gigantic bear market.
The situation is dire.
Modest rate hikes are desperately needed, because rate hikes pressure global governments to shrink themselves. The hikes also incentivize savers to put money back into banks, where it can be professionally loaned to consumers and entrepreneurs.
When this occurs, corporations grow in productivity, jobs increase and tax revenues explode. This will lead to an inflationary boom.
The Fed’s obsession with rate cuts helped grow government, destroy savers, and it also created an enormous multi-year bear market in gold stocks.
While many people think that higher interest rates will suppress the precious metal markets, we must come to realize the anticipation of higher rates have already been factored into these markets. Thus, leading to the possibility that the lows in the metals have already been realized. If not, they are close.
Remember that many investors in the Western gold community were terrified of the interest rate taper to zero, and they are now almost as equally terrified of rate hikes.
It’s important to understand that what matters to gold price discovery is demand versus supply, inflation, and the real level of interest rates.
One must recall the late 1970’s when the Fed was forced to raise interest rates to nearly 20%. The gold market experienced a price explosion from the $200 range to over $850. During this same time frame, the silver market spiked from the $5 area to over $50 an ounce.
If rates rise, but inflation rises faster because of a reversal in money velocity, money managers will buy a lot of gold. Markets tend to move in anticipation of these key fundamental events. I believe we are seeing the possible foundation of one of the most massive precious metal rallies to date.
With the national debt approaching $18.5 trillion and the world community questioning the status of the US dollar holding on to it’s standing, as the perceived world reserve currency, it does not rationalize the folly of holding your net worth in a US dollar fiat currency. A transfer of a sizable portion of your investment portfolio into precious metals is highly recommended like no time before in history.
About the Author Stanley Paul
I have been a professional trader since the late 1970s. Recently, I made the decision to accept the position of Market Analyst for National Coin Broker. I chose this firm because I know them to take the concerns of their client to heart and I know them to be fair in their pricing and knowledge of the precious metals markets.
National Coin Broker has made my knowledge, experience and expertise available to all of our clients. I am available any time to help if you wish to study charts, graphs, technical or fundamental factors as they relate to the precious metals markets.
Our goal is to help you understand the markets to make educated decisions on where to put your hard earned money to build a safe yet profitable precious metals investment portfolio. Should you wish to study the technical charts of precious metals, please contact me anytime by emailing email@example.com
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