So, why hasn’t gold taken off?
We hear this question over and over again. In this video, Peter Schiff answers this question and explains why the markets will eventually wake up to their misperception.
That’s the key word – misperception.
Taper tantrums and fear of Fed rate hikes have distorted perception in the markets. People are selling gold when they should be buying gold on the dips.
And at the root of this misperception is the market’s focus on nominal interest rates instead of real interest rates.
The Federal Reserve now plans to raise interest rates three, possibly four, times in the next year. The conventional wisdom is that these rate hikes are bearish for the price of gold. This is why every time we got hotter than expected inflation news last year, the price of gold fell. Everybody assumed the central bank would speed up the pace of these rate hikes.
Gold has been rangebound around $1,800 for months. Peter pointed out that the fact gold hasn’t really gone down despite this universally held belief that monetary tightening is negative for gold is a positive sign.
But it’s key to understand that not only are these projected rate hikes not negative for gold – they are actually going to be a positive.
The Missing Puzzle Piece – Real Interest Rates
Why do investors assume rate hikes are bad for gold?
Generally speaking, rising interest rates increase the opportunity cost of holding gold.
Gold does not generate a yield. If interest rates rise and you’re holding gold, you’re forgoing the interest income you could earn on dollars if you put them in a bank account or invest them in bonds. That’s why rising interest rates tend to create headwinds for gold. And it’s why we’ve seen gold sell off on high inflation news. The markets expect the Fed to fight inflation with rate hikes, thus raising the opportunity cost of holding gold.
Rates have been at zero for a long time. That means there has been no opportunity cost to own gold. The Fed’s artificially low interest rates have been supportive of gold. The fear (and misperception) is if the Fed removes those supports by raising rates, gold will crash.
Peter says that’s not going to happen.
The key is understanding the difference between nominal interest rates and real interest rates.
“When you’re talking about an opportunity cost, the interest rate has to be real. And by real, I mean above the rate of inflation.”
Even based on the government’s flawed CPI, inflation rose by about 7% in 2021.
“Even if the Fed follows through with all of the rate hikes that it’s projecting, it’s talking about slowly raising interest rates in one-quarter point increments until, at the end of this year, they’re at 1%. And they’ll continue the process in 2023 until at the end of 2023, we’re at 2%. And supposedly, the 2% rate of interest represents a huge headwind for gold because it’s an opportunity cost, and a lot of people that are in gold are not going to want to be in gold when they can get a 2% yield on their cash.”
Peter said the whole idea is absurd.
If you accept a 7% inflation, even though the actual rate of inflation is probably 15% if the government measured it accurately, that means the dollar is losing 7% of its purchasing power every year. In exchange for that, you’re going to be able to earn 2% in interest to offset the 7% you’re losing to inflation. You are still -5%.
“Negative 5% is not an opportunity cost. Nobody wants the opportunity to lose 5%. So, if you’re giving up a 5% loss, you’ve given up nothing.”
In order for there to be an opportunity cost, you have to have an interest rate above the rate of inflation. If the Fed raised rates to 10%, that might be a problem for gold. With an inflation rate of 7%, you would be giving up 3% in real interest that you could otherwise earn.
“But if they’re just talking about raising rates to 2%, that’s nothing! I’m going to stay in gold to avoid a 5% loss. The opportunity cost is not owning gold. It’s owning US dollars and losing 5%. What the Fed is doing is too little too late to derail the gold bull market.”
In fact, Peter said he thinks the Fed will initiate the next leg up for gold when the markets wake up to this reality.
The Inflation Fight the Fed Can’t Win
Right now, everybody is fixated on the Fed’s fight against inflation. They assume that the central bank is going to win. So, why own gold?
At some point, the markets will realize that these incremental, tiny rate hikes are not nearly enough to stop inflation. The Fed is way behind the curve, and inflation is rising much faster than the Fed is talking about hiking. In fact, the Fed isn’t really talking about tight monetary policy at all. The Fed is talking about slightly less loose monetary policy. Less loose isn’t tight.
“What the Fed is talking about doing is reducing the amount of gasoline that is pouring on the inflation fire. That still means the fire is going to get bigger. Even if it gets bigger more slowly, it’s still going to get bigger.”
But Peter said he thinks it may get bigger even faster.
“When the markets realize these rate hikes aren’t doing any good, and that inflation is getting worse, that’s another reason to buy gold.”
And while the rate hikes won’t be big enough to tame inflation, they may well be big enough to prick the bubble economy.
“When you develop an addiction to a certain amount of monetary heroin, even if you get monetary heroin, but you get a smaller dose, it’s not enough for your habit. And I think that’s going to happen in the markets.”
Ultimately, it will bleed into the economy and drive it into recession. That means we’ll not only have inflation but stagflation.
“In the face of that, the Fed is ultimately going to do an about-face. It’s going to start cutting interest rates again and restarting the QE program even though the inflation problem has gotten worse.”
When that happens, gold is going to go ballistic.
“But between now and then, take advantage of the misperception in the market that these rate hikes, if they actually come, are bearish for gold. That’s keeping a temporary lid on the price of gold. Eventually, reality is going to blow that lid off. But in the meantime, buy yourself some gold. In fact, maybe even better, buy some silver as well.”
This sale is not going to go on forever.
“When you get a gift horse, don’t look it in the mouth. Just take advantage of it.”
No ‘Charisma’, ‘Dull Personality’: Trump Says DeSantis Could Never Beat Him in 2024 – Report
Virtually all polls over the past year have shown that Trump, if he decides to run, remains the undisputed leader of the Republican primaries in the 2024 election. But when pollsters remove Trump from the hypothetical lineup, DeSantis is the favorite of Republican voters.
Former President Donald Trump privately sees fellow Florida Gov. Ron DeSantis as an ingrate with a “dull personality” who stands no chance of defeating him in a potential 2024 Republican matchup, Axios reported, citing sources within Trump’s circle.
“In the context of the 2024 election, he [Trump] usually gives DeSantis a pop in the nose in the middle of that type of conversation,” a source who recently spoke to the 45th about DeSantis claimed. “He says DeSantis has no personal charisma and has a dull personality.”
According to the insider, Trump makes a point of stating that he is unconcerned with the Florida governor as a prospective 2024 opponent.
Both Republican politicians are among the most popular in the GOP in the country, and Trump is reportedly irritated by DeSantis’ popularity and refusal to rule out a run against him in 2024.
The reason for Trump’s annoyance with DeSantis, according to a second source familiar with the situation, is “that Ron DeSantis won’t say he won’t run [in 2024]. … The others have stated pretty clearly they won’t challenge him.”
Several potential GOP presidential candidates have either ruled out running if Trump runs, or stated their support for the former president if he does.
Republican Governor of South Dakota Kristi Noem, and Senators Marco Rubio of Florida, Rick Scott of Florida, Tim Scott of South Carolina, and Josh Hawley of Missouri are among others who have expressed their support for Trump should he run. According to Axios, these endorsements have already piqued Trump’s interest.
There are two potential opponents to the ex-POTUS: DeSantis and former Vice President Mike Pence, as neither has ruled out challenging Trump in 2024. According to Axios, however, Pence seems to bother Trump less than DeSantis. The former president has reportedly informed aides that he believes Pence’s political career is done after he rebuffed Trump’s request to send electors back to the states on January 6, 2021.
Trump reportedly believes “there’s no way” DeSantis would have become governor without his support.
“What’s the big deal? Why won’t he just say he’s not going to run against me?” he allegedly told someone in his inner circle.
However, DeSantis has apparently not shied away from firing back at Trump, including for his not-so-subtle criticism, either. One of the governor’s biggest regrets in office, he claimed on the “Ruthless” podcast last week, was not speaking out “much louder” in March 2020, when Trump recommended staying at home to slow the spread of the novel coronavirus.
In a recent interview, Trump, without mentioning anyone by name, apparently took a shot at DeSantis and a slew of other politicians for not disclosing their vaccination booster status.
US media frequently reports about the so-called Trump-DeSantis feud, stating that Trump’s personal dissatisfaction with DeSantis’ ungratefulness and willingness to oppose him dates back several years. But DeSantis said on the podcast that allegations of friction between him and the former president were fabricated.
However, he dodged a question regarding his chances of becoming the Republican presidential contender in 2024.
Apart from those already mentioned, Former Secretary of State Mike Pompeo, as well as Senators Ted Cruz (R-Texas) and Tom Cotton (R-Arkansas), have not publicly ruled out a run against Trump.
Triple-vaxxed top US general gets Covid-19
General Mark Milley, chairman of the Joint Chiefs of Staff, has tested positive for Covid-19 and is working remotely, the Pentagon has announced. One other member of the Joint Chiefs is positive, but the military did not say who.
Milley tested positive on Sunday and is “experiencing very minor symptoms and can perform all of his duties from the remote location,” Joint Staff spokesman Colonel Dave Butler said in a statement on Monday.
The general “received the Covid-19 vaccines including the booster,” Butler added. All other Joint Chiefs tested negative except for one, but he would not say who it was.
Milley’s last public event was last week’s funeral of retired general, Raymond Odierno, at Arlington National Cemetery, where he was in contact with President Joe Biden.
The Biden administration announced Friday that it believes Russia will conduct a false flag attack and blame Ukraine as a pretext for invading the country.
“He tested negative several days prior to and every day following contact with the president until yesterday,” Butler said.
Defense Secretary Lloyd Austin had tested positive for Covid-19 on January 2 and also worked from home for several days, returning to the Pentagon last week.
Austin insisted at the time that being fully vaccinated and boosted “rendered the infection much more mild than it would otherwise have been,” and that he would not back away from the vaccine mandate for the US military. “The vaccines work and will remain a military medical requirement for our workforce.”
Support For Republican Party Rises to Highest Level Since 1995
A new poll finds that support for the Republican Party has risen to its highest since 1995, enjoying a 9 per cent boost since the start of 2021.
According to the Gallup survey, 47 per cent of Americans identified as Republican or Republican-leading at the end of last year, compared to just 38 per cent at the start of the year.
“Meanwhile, 42 percent of survey participants identified as Democrat or Democrat-leaning between October 1 and December 31, a seven percent decrease from the first quarter of the year,” reports the Daily Mail.
With Republicans likely to take both the Senate and the House later this year, it appears increasingly plausible than Biden will be a lame duck president.
As we highlighted last week, Biden’s approval rating dropped by a whopping 11 points in a single month, leaving him on a record low of 33 per cent.
A separate poll also found that just 15.5 per cent of Americans trust Biden when it comes to information about COVID, while his inability to stop runaway inflation has also eviscerated support for his administration.
Meanwhile, a separate poll conducted by Schoen Cooperman Research finds that the number of Americans who believe Joe Biden legitimately won the election has shrunk by 10 per cent since last April.
Now only a narrow majority of 54 per cent think Biden won fair and square.
The same poll found that only 26 per cent believe democracy “is secured for future generations,” while 51 per cent think it’s in danger of extinction.
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