Loading ...market…Powell’s gotta keep the $ from rallying…like it or not, gold’s going. higher…
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This is the main point you should chew on this weekend; you may disagree with my data deterioration theme which gives the Fed reasons to cut, but do not miss this important point why the Fed will cut:
Rising deficits which causes increase treasury supply at a time when foreigners are losing their appetite to fund the US govt (as noted above in the bond auction) means the Fed needs to talk dovish/cut rates/provide accommodation/inject liquidity in order to keep yields from rising. We saw what happens when front end yields like 1y1y rise above 3% as it did in Q3 2018; the system breaks.
As I said in Tuesday’s note, we are seeing this issue play out in the FF/IOER spread whose widening is purely on the back of too much government debt sitting on bank balance sheets. The Fed is struggling to control front end rates and you cannot have rates rising or this whole economic cycle and market will fall apart.
The Fed has to ease, long-term economic trends show data deterioration, but there appears to be a bit of inflation creeping into the pipeline, i.e. stagflation. That all means steeper curves and now higher gold prices.