Last Time it Jumped 9x in Six Months
Don’t look now, but the Federal Reserve is raising interest rates.
This is bad because the world is swimming in debt. The U.S. federal government is some $21 trillion in debt, and it’s growing at close to a trillion a year.
There is student debt, housing debt, credit card debt... but perhaps most important, there is corporate debt. In fact, it has never been as high as it is right now in terms of the corporate debt to GDP ratio.
Fed Chief Jerome Powell recently gave a speech on interest rates and the future Fed rate hikes.
Powell said he expects the “strong economy to continue,” there “does not seem to be elevated risk of overheating,” and the “gradual process of normalization remains appropriate.”
The economy is strong. Inflation is near our 2 percent objective, and most people who want a job are finding one. My colleagues and I are carefully monitoring incoming data, and we are setting policy to do what monetary policy can do to support continued growth, a strong labor market, and inflation near 2 percent.
There was no mention of the Fed independence in light of President Donald Trump’s push to keep rates low. It seems the Fed will keep a slow rate hike agenda with the idea of moving faster if inflation starts to move up.
Of course, once inflation starts to move, it'll be too late to hike rates.
The idea of future inflation is bullish for gold.
If you are a true market contrarian, you have to ask yourself, what is the most hated asset right now? It would be hard to argue that it’s not gold.
From the turn of the century until 2011, the price of gold went from $300 to $1,900 per ounce. Then began the long, slow slog downward. It now sits around $1,200 an ounce.
Believe me, nobody wants it. They would rather buy Amazon or Apple at the top. Do people think Amazon will go up another 10 times? Will we be looking at a $10 trillion value for Apple?
No, of course not.
To put that in perspective, the U.S. GDP is a massive $18 trillion this year. Apple will not ever be worth half the U.S. economy. It just won’t.
On the other hand you could easily imagine gold at $2,000 or even $2,800 an ounce.
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Right now, there is a massive short-squeeze possibility that would launch gold.
According to Bloomberg:
Exchange-traded funds tracking the metal have bled assets for 13 consecutive weeks, the longest run in five years, investors have placed the biggest gold short on record...
Hedge funds and other large speculators increased net-short bets on the precious metal in the week ending Aug. 14 to the most on record, according to data published Friday going back to 2006.
Wow, the biggest shorts on record. When these New York traders are forced to buy back their shares at a higher price, it will launch gold.
It’s happened before. In 2016, the 3x Junior Gold Miner ETF (NYSE: JNUG) went from $15 a share to $135 in six months.
The catalyst for it to happen again is a jump in interest rates, which will force the corporations to abandon their “borrow money and buy back shares” business plan.
They won’t be able to borrow money at cheap rates. At the same time, all of their massive debt will start to roll over. The seeds of destruction will be sewn as soon as December of this year.
Like I wrote last week, insiders are using cheap government money to buy back shares, thus pushing Wall Street higher. They are also selling into this manufactured strength. This might be unsavory, but it is perfectly legal.
I have a write-up on the December destruction and what you can do to protect your wealth headed your way this afternoon. Keep an eye on your inbox. You don't want to miss this.
All the best,
Since 1995, Christian DeHaemer has specialized in frontier market opportunities. He has traveled extensively and invested in places as varied as Cuba, Mongolia, and Kenya. Chris believes the best way to make money is to get there first with the most. Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor's page.
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