💡What is the Price of Gold Telling Us?

Issue 134

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Today’s Bullets:

• Gold All-Time Highs

• Fed and Inflation

• Geo-Political Demand

• Grey to Black Swans

• Implications for Bitcoin

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Inspirational Tweet:

With gold ripping to new highs recently, after a long consolidation period, many people are wondering about the reasons behind the move.

I mean gold is an old, boring—if not shiny—pet rock, right?

Who wants to own that?

And most importantly, what is this recent buying telling us about overall market sentiment, market concerns, and what can we expect Bitcoin to do, considering gold’s price action?

Good and important questions, and ones that we will unpack, nice and easy as always, here today.

So, pour yourself a nice hot cup of coffee, and settle into your favorite seat for a Sunday walk down the golden brick road with The Informationist.

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📈 Gold All-Time Highs

First things first, let’s have a peek at the long-term trend of the price in gold.

You can see here that it appears to have begun to increase in price almost parabolically for the past few months, reaching an all-time high pretty much week after week.

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And this is after a long period of consolidation over the past four years or so, as shown in the red channel below:

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No surprise, as we were in a high interest rate environment, and the shiny pet rock pays no dividends to compete with that.

Instead, investors were enticed to continue to pile into risk equities and high yielding bonds and money market accounts.

But something changed this past spring, and gold began to perk up, lifting to an all-time high above $2,000 per ounce.

To give you an idea how much money that is, this simple chart (by Matthew Mezinskis of Porkopolis) shows the total estimated amount of gold coins, bars and jewelry in circulation and sitting in Central Banks, home safes and vaults around the world:

That’s right, there’s currently about 6 billion ounces of non-industrial gold for $15.7 trillion of global gold money-equivalent.

To understand why gold has been on the move, we have to take a look at recent Central Bank manipulat—er, policy.

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🔍 Fed and Inflation

As you may have heard, the US Fed joined other central banks and adjusted its policy this past week by lowering the Fed Funds Target Interest Rate by .5%.

To put it simply, this was a big big deal.

Why?

Because it gave the markets a strong signal that the era of higher for longer interest rate policy is over, and we will soon be ushering in more accommodative conditions.

And looser policy, of course, means easier access to money. For everyone.

But here’s the thing. The Fed has clearly done this pre-emptively, in an attempt to head off any possible recession and a spike in unemployment.

We know this, because the Fed has still not achieved its target inflation rate of 2%, as inflation has been stuck between 2.5% and 3% for almost a year now.

Yet they are lowering rates now.

This is telling us one thing: Powell is far more concerned with a recession than he is with stamping out inflation.

But there’s one (BIG) problem.