Loading ...We issued a warning on gold back in Sept of 2020 because of what we termed “the vaccine dead zone” approaching, which would cause real interest rates to soar. That is exactly what occurred. Gold dropped by 20% from August ’20, thru April ‘21. Now the Fed has admitted that it has begun to talk about ending QE. But this is not the start of another bear market in gold. Instead, it is most likely the end of the bear market and the incipient beginnings of a massive bull market. Why? because of what I pointed out at the start of this commentary. The fed can’t remove very much liquidity from the system before chaos reigns on Wall Street.
The simple truth is, asset values and debt levels have grown to become such enormous monstrosities that they prohibit the tightening of monetary policy much at all before the entire fragile and artificial edifice collapses.
Back in February of 2012, at the height of the European debt crisis, the Greek 5-year Bond Yield skyrocketed to 63%. The free-market deemed the nation to be insolvent and that it could never pay back its debt without returning to the Drachma; and then turning it into confetti. Hence, bond yields surged—makes perfect sense, correct? Also in 2012, the Greek National debt to GDP ratio was 160%. Today, that ratio has soared to an all-time record high of 210%; and yet, these bonds display a negative cash flow going out 5 years in duration. Only one thing has changed: central banks deemed it mandatory to step in and replace the entire demand for government debt in order to force interest rates towards zero percent. It is the only way these countries would have any semblance of solvency.
Sadly, the U.S. is headed in this exact same direction as Greece and Japan. And, that is why we can be certain central banks’ monetary tightening cycles can’t last for very long and will end in disaster–as per usual. In fact, Mr. Powell will probably torpedo markets before he is able to end his current historic and massive QE program.