Early Aught Perspective

160
Thu, Mar 2, 2017 - 11:56am

Since all of the Fed Goon jawboning this week has now raised the odds of a March FOMC rate hike to 147%, we thought it best to write today with some perspective on the past...perhaps unearthing some clues as to why Comex Digital Gold seems to rally every time The Fed hikes rates.

The challenge for your host is to somehow make this case logically through the written word only, when this information might be better presented through a podcast. But here goes...

As we discussed yesterday, this is your most compelling chart at present:

We all noticed yesterday that, even as rate hike odds hit 115%, CDG and CDS refused to break substantially lower. Now today, with rate hike odds at 159%, CDG and CDS are once again hanging tough. Yes, they're both down a little but, as I type, CDG is only off $7 at $1242 with CDS down just 10¢ at $18.38. So, what's the deal?

I think the answer lies in history...and not just the most recent history.

Many of us came to the sector after the onset of The Great Financial Crisis and it seemed that the dollar price of gold and silver was tied to dollar devaluation and sharply falling interest rates. And why wouldn't you feel that way? 2010 and 2011 saw sharply rising prices and record highs while rates and the POSX plummeted. HOWEVER, this analysis ignores what happened before 2010 and I think THIS is what we may need to focus on for a while.

Do you recall seeing charts like this back in the day?

The dollar price of gold followed almost precisely with the rising level of US debt. And take a good look at that chart. From 2003-2008, the dollar price of gold rose from $300 to $1000...that's 3X!...all the while, the total US debt rose by 50% from $6.5T to $10T.

And here's what you need to consider...The period of 2003-2008 was NOT a period of steeply falling interest rates. See below. This chart is the US 10-year note rate from 1/1/03 through 1/1/08:

So, if we step back and consider price history that extends back beyond just the 2010-2011 timeframe, it might be quite plausible to expect higher gold prices AND higher interest rates as US debt levels continue to soar under The Don's tax and spending plans. A more recent and longer term chart of debt and gold is posted below. We all know how this trend has disconnected over the past few years but, as this chart shows, this isn't the first time this has happened. Note the period of 1995-2003...and then note how quickly the price of gold rushed to catch up!

So, with the period of 2003-2008 as a guide, we can plainly see that gold in fact CAN and DOES rise during a period of flat/rising interest rates. This, in part, explains why CDG has rallied from the last two rate hikes and likely explains the relative firmness in price this week. (Of course, now I look and I see that suddenly The Banks have decided to smash price while I've typed!)

One more piece of the puzzle needs to be put into place. As you can see below, the period of 2003-2008 also saw a rather significant drop in the dollar. It fell by about 25% over that time period as the DXY began 2003 near 100 but was near 75 by 2008.

While the dollar has rallied since the election of Trump, the new American president has indicated that he may prefer a weaker U.S. dollar in order to help with his international trade programs.

So...

Are we entering a period of higher rates, higher debt levels and perhaps a weaker dollar? If so, there's historical precedent of steeply rising gold prices under these conditions and this might explain the last two rallies from FOMC rate hikes as well as the current strength in gold in the face of another, pending Fed Funds hike.

TF

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turd [at] tfmetalsreport [dot] com ()

  160 Comments


Mar 2, 2017 - 11:59am

MAJOR silver raid in progress

We spoke on Monday about the likelihood of CDS falling back to test the support of the 200-day MA below $18. Well, it looks as if JPM et al have decided to give it a go this morning. Out of the blue, silver is being smashed on no news or any other event. This is just an old school price raid, designed to shake out Spec longs and induce more selling. It's criminal price manipulation, pure and simple. Sadly, it still passes for a "market" in 2017. (This is the third time I've updated this chart in the past ten minutes!)

The last time The Evil Ones tried this blatant of a stunt was on Friday, November 11, when price was smashed for $1.36 with the intention of breaking the 200-day. Well, here they come again.

Marchas45
Mar 2, 2017 - 12:08pm

4th

I don't care, I'm ready to efen give up.

RickshawETF
Mar 2, 2017 - 12:09pm

thurd

thurd

Marcrward
Mar 2, 2017 - 12:10pm

Classic

Love the algo

billhilly
Mar 2, 2017 - 12:11pm

regarding Miners...

I used to be able to handle this....

but now I find myself only hoping for this....

gold leader
Mar 2, 2017 - 12:11pm

Well timed trip to the LCS

I guess. Sadly. One of these times, Alice! /moon


Mar 2, 2017 - 12:12pm

If JPM is successful

A good spot for me to add would be $17.25. That's the area I'll be watching.

gold leader
Mar 2, 2017 - 12:14pm
batting500
Mar 2, 2017 - 12:15pm

The hikes - THE HIKES...

At this point it really is all about the hikes, are they pretend or real, how many and how much. And what impact will they have on the rest of the market place

Good luck all...

batting500

ReachWest
Mar 2, 2017 - 12:15pm

More Paper - Less Physical

These smack downs really do get old. And .. I hope Andy is right that the physical market will makes these paper alchemists sorry they ever created all these paper certificates. (and soon).

canary
Mar 2, 2017 - 12:16pm

Predicted Daily Trends for Gold and Silver...for the next day

Friday, March 3

Spot Gold Intra-Day Trend: Choppy-Sideways. VantagePoint’s short-term indicators are still conflicted.

Spot Silver Intra-Day Trend: Choppy-Sideways. VantagePoint’s short-term indicators are still conflicted.

Boing_Snap
Mar 2, 2017 - 12:19pm

Wow the damage a .25% rate hike

Lol, and the Dow sits there down .25%, well there's a correlation there, but it's beyond me.


Mar 2, 2017 - 12:24pm

It's important to understand

The sudden 252% likelihood of a rate hike means that we're likely in for a challenging two weeks. However, and what this post seeks to show, another hike likely means HIGHER CDG and CDS, not lower, as debt levels continue to soar in the months ahead.

brokerk22
Mar 2, 2017 - 12:24pm

and the

VIX is down 6% on a 70 point down day. LOL what a sham again and again and again.

goldcom
Mar 2, 2017 - 12:25pm

Pure unfettered

Pure unfettered economic tyranny for those of us trying to protect ourselves from their reckless scheme.

lakedweller2
Mar 2, 2017 - 12:25pm

.25 Rate Hike

Good for gold unless that is the only thing the Fed can come up with to rationalize a criminal attack on gold. MOPE.

Marchas45
Mar 2, 2017 - 12:25pm

Bloody Hell Turd

Don't Rub It In, I've Been Adding To All The Efen Drops, For What, So They Can Drop It Again? Man I Guess I'm Having A Rough Efen Day, Today. Time To Calm Down and Have Some Popcorn Chips, A Dr. Pepper and Watch The Charade. Can You Tell I'm Pissed Off?

Marchas45
Mar 2, 2017 - 12:26pm

what am I "rubbing in"?

I don't understand.


Mar 2, 2017 - 12:28pm

On the bright side

Just as we've been expecting, Bitcoin is surging toward $1300 and likely beyond. This does NOT make up for the damage to my miner portfolio today but it's nice to see something in the green...

LostMind
Mar 2, 2017 - 12:30pm

Well, there goes all remaining

Well there goes all remaining hopes of convincing anyone to get out of the Stawk Market and into metals... No one, and I mean no one I know, will ever listen to this advice again.

Curious is if our sanity will survive the ability of the cabal to short the market into oblivion... F'ing amazing!

goldcom
Mar 2, 2017 - 12:34pm

So what are we going to do Turd?

Are we going to turn this site into a Bitcoin crypto currency site?

goldcom
Mar 2, 2017 - 12:37pm

Sorry Turd

Sorry about that last post Turd. I think there is a whole lot of frustration here today. Certainly is for me.

canary
Mar 2, 2017 - 12:39pm

How nasty and opportunistic they are

Knowing that five goons will speak tommorrow (Evans, Lacker, Pawell, Yellen, Fisher)...And that Yellen (1PM) will deliver the "final confirmation" for the March rate hike....they smashed silver today, expecting a follow-up avalanche tomorrow....Hope that a meteorite hit their FOMC meeting one day (March 14, 15 preferably).

Marchas45 Marchas45
Mar 2, 2017 - 12:40pm

Turd That It's

Heading Down To $17.25 and don't take everything personal. Do I always have to put a Lol after everything I say so you know I'm only joshing. Lol

joeblack
Mar 2, 2017 - 12:43pm

Bitcoin is

a derivative of a computer algo

no thank you

jaba
Mar 2, 2017 - 12:44pm

Maguire

I always find Maguire's interviews interesting, logical and persuasive.

But each time over the last year or so, whenever Maguire has stated that the sovereign and hedge funds have bids just below the market price, thus limiting the bullion banks' ability to bomb the price and cover their shorts, the bullion banks seems to go out of their way to prove him wrong and blitz the price.

What happens to all those sovereign and hedge fund bids? It seems that the paper dog can still wag the physical tail when it counts - at inflection points.

From a psychological point of view the bullion banks are experts at demoralising the PM investors.

Dr. P. Metals
Mar 2, 2017 - 12:46pm

But...

miners never lead metals

/sarc

Dr. P. Metals
Mar 2, 2017 - 12:46pm

@joeblack

and silver/gold are derivatives today of bankster paper (pricing wise).

goldcom
Mar 2, 2017 - 12:46pm

Of course not

But it's logical to own some BTC. As most here recall, I only started buying it last summer when I figured out what the "halving" was all about. Since then, my $2500 "investment" has grown into nearly $5000. I think that's fun.

As to the frustration and anger at The Cartel...Other than on days when I finally crack (go back and listen to the podcast of Friday Feb 17 for an example), I refuse to get pissed off anymore. It just is what it is and I FULLY understand the hows and whys. In truth, the only thing that bothers me is knowing how everyone will respond here. There's always so much anger and frustration that boils over on days like today that it makes this running the site a lot less fun. BUT THAT'S OK. You've all got to be able to vent and share your frustration. When you're done though, I PLEAD WITH EVERYONE to keep your eyes on the long term and thoroughly read and contemplate the information supplied in this blog post.

lakedweller2
Mar 2, 2017 - 12:48pm

Frustration

The real frustration is that we are living in a country that has decided criminality is the direction the Federal Government should take to honor the citizens and their constitution.

I feel that somewhere I was deported while I was asleep and I awoke in a banana republic where my dreams and efforts amount to nothing. I am only a target until I am bled of whatever wealth I earned in the "old country".

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