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General Precious Metals
Gerardo Del Real: It's All One Big Shell Game
The past month has provided a glimpse into the future.
We got a 25 basis point rate cut from the Fed on October 30, 2019, the third such cut since late July.
It’s my opinion that the market — never satisfied with historically low interest rates or the complete about face from the Fed — will force the Fed into another rate cut sooner rather than later.
When it happens isn’t as important as why it will happen: China.
For years, the smartest people in the room have explained — correctly — that geopolitical events only lead to short-term moves in the market.
This time is different because geopolitical events are now directly affecting policy, both legislatively and monetarily. It’s all connected.
Reuters reported that the phase one trade deal between China and the U.S. may not be completed by the end of 2019.
Though trade wars are not sustainable, I’m starting to doubt whether a trade deal ever gets done.
What is getting done is a bill supporting the Hong Kong protestors.
The U.S. Senate, in a unanimous vote, passed legislation aimed at protecting human rights in Hong Kong amid a crackdown on a pro-democracy protest movement that has now lasted for months.
The House of Representatives already approved its own version of the measure before that. The President signed the bills into law at the end of November.
China responded sternly by saying that the bills amount to the U.S. “meddling” in domestic affairs.
This follows Fed chair Jerome Powell’s statement after the quarter point rate cut where he stated that the Fed would not cut interest rates — or raise them — unless something significant changed in its outlook.
A breakdown in talks on the trade deal with China would give the Fed enough cover to cut further as global trade continues on a deflationary course.
Here’s how I see things playing out: The trade deal stalls, the major U.S. indices pull back, allowing Harry Dent to tell everyone that the U.S. stock market is about to crash.
The Fed will step in, cut rates, juice the market some more, and then we’re off to the races again.
What that creates is the volatility needed for gold to continue its resilient pose and ultimately break out.
I continue to believe that gold pulls back one last time. Gold broke below $1,465 on a monthly level and I believe we could pull back to the $1,400 level, which would be just fine for my bullish thesis.
Meanwhile, in Europe — I keep bringing the Eurozone up because it’s important — Bloomberg is reporting that the ECB is now warning of potential side effects from its loose monetary policy, highlighting how years of unprecedented stimulus designed to bolster the economy is contributing to what it is now calling an erosion of financial stability.