A reader asked me to write about gold. O.K. Here’s something I have been thinking about after watching Fed Chair Jerome Powell’s testimony before Congress yesterday. 
Bipartisan Bickering
Powell’s appearance before Congress Q&A was dripping with partisanship.
Republicans phrased questions to Powell blaming Biden for inflation. Democrats phrased questions to Powell praising Biden for the miraculous job he has done.
Will anyone do anything about anything?
Attempts to Drag the Fed Into Climate Change
One representative asked Powell to comment on money for Ukraine and he would not answer.
Another representative tried a different tact. She asked Powell if climate change was a risk.
Powell responded absolutely. The follow-up question was along the lines of OK what are you going to do about it.
Powell’s answer was essentially “nothing”. Powell pointed out the Fed has a dual mandate, price stability and employment, and that climate change was the job of Congress.
The Fed’s 2.0 Percent Target
The next questioner wanted the Fed to raise its inflation target from 2.0 percent to 2.3 percent or 2.4 percent.
That was a cleverly picked number give year-over-year PCE inflation is 2.4 percent.
In response we have an official denial. Powell said the Fed would not do that.
Question of the Day?
Does anyone out there think the Fed adhere to its 2.0 percent target?
The market does not believe the Fed will achieve price stability. Neither does gold, bitcoin, home prices, or the stock market in general, all making new record high.
How the hell can the Fed address climate change when it has not and will not address price stability?
There Is No Plan
Actually, Here’s the Plan
Gold vs the US Dollar
Gold vs the US Dollar Synopsis
Contrary to widespread myth, gold is not a good US dollar hedge.
With the US dollar Index at 90, gold has been at $380, $1000, $1130, and $1900.
And there are times when gold and the dollar rise together.
When Does Gold Do Best?
In general, gold is a poor inflation hedge. The best example is gold fell from$850 to $250 per ounce with inflation every step of the way.
In the mid-to-late 1990s, everyone thought “The Maestro”, Alan Greenspan, had everything under control. In such periods, gold is among the worst assets to hold.
Gold is best viewed not as a hedge against inflation but a hedge against credit stress, stagflation, and faith in central banks.
My lead chart notes some key dates and events.
Related Posts
Let’s check in with former Fed Vice-Chair Alan Blinder and his soft landing thesis.
February 27, 2024: Hoot of the Day “The Fed Has Reached the Soft Landing Runway”
March 5, 2024: ISM Services Respondents Share Concerns Over inflation and Employment
March 4, 2024: The Atlanta Fed on “Pent-Up Exuberance” and Threat of More Inflation
February 29, 2024: A Severe Eurozone Recession and Debt Crisis is On the Way
February 22, 2024: Within 10 Years, Interest and Medicare Will Each Cost $1.6 Trillion a Year
September 7, 2023: Debt to GDP Alarm Bells Ring, Neither Party Will Solve This
“Neither party will fix the deficits. Neither party will do anything about mounting debt. No one will do anything about anything because the political system is totally broken.” Mish
That’s the message of gold. Bitcoin advocates would say Bitcoin as well.
Please click on some of those links and tell me who will address them and how.
And let’s not forget the end of global wage arbitrage, the end of just-in-time manufacturing, huge union wage contracts, massive boomer retirements that will stress the health care system, and Biden’s very inflationary regulations and energy policies.
Is Everything Under Control?
Gold is reacting as if not. And I do not think so either.
While the market cheers a soft landing, I sense upcoming stagflation. And stagflation (or credit stress), is the message from gold.
“In general, gold is a poor inflation hedge. The best example is gold fell from $850 to $250 per ounce with inflation every step of the way.”
Gold is a hedge against *rising* inflation. The fall from $850 to $250 happened during a disinflationary period i.e., when inflation rates were *falling*.
Yes, and I said that.
There was inflation but at a falling rate.
But look at what’s happening now.
Supposedly the rate of inflation is falling.
So, what’s different.
“The next questioner wanted the Fed to raise its inflation target from 2.0 percent to 2.3 percent or 2.4 percent.”
If you can’t reach the goal post, just move the goal post, so you can. Equity based targeting.
“How the hell can the Fed address climate change when it has not and will not address price stability?”
How can there be price stability when money is created out of debt, which requires more debt to pay back the interest on the original money creation, to keep all the plates in the air?
I have a close friend who had cash in 1998 when the Thai Baht dropped from 25 to 55 to the Dollar. He bought $600,000 of gold bars. Gold was below $300. He’s been peaceful ever since.
Say what you will …. But GOLD is still around after 5,000 years and paper currencies have always died every time ….
Physical Gold is for Wealth preservation … say no more ….
It is, until someone like Roosevelt confiscates it.
https://thehill.com/homenews/4517470-dei-killed-the-chips-act/
This is one of many reasons why stagflation is coming.
I have to bookmark this. The local multiple alias scam artist idiot only 2 weeks ago on Feb 22, 2024 put forth the following post. 2 weeks later gold hits all time highs about $125 higher. This is hilarious.
“”MPO45v2
14 days ago
Reply to Alex
How will gold help? How did gold help over the last few years of massive inflation? The S&P 500 did far better than gold. Heck bitcoin (a fake useless currency) did better than gold.””
I am honored you are now capturing my comments and bookmarking them. You are a finally wising up.
As to the question at hand, no one answered the question on how gold helped. Is gold up? yes but how did it help.
The ONLY way it will help is if you capture those profits and SELL the gold otherwise it’s paper gains.
In contrast my oil dividend stocks pay me about $10k every quarter in cash. The stocks can go up or down but the dividend comes. If oil stocks go really high, I will cash them out and invest in other stocks. I am also in T-bills paying 5.3% every month, the cash keeps rolling in.
In any event, the cash keeps coming so how is gold helping? did you sell and capture those gains? if not, what happens in 2 or 3 years if gold goes back down? Will you be here bragging about losses?
Speaking of losses, how is the Pfizer stock working out for you that you bought high? Funny thing is, now is a better time to buy so I hope you’re dollar cost averaging.
Will the Fed adhere to the 2% target? They might. They can just reweight the index and use hedonics and other machinations to make sure the data fits the 2% target. Or they’ll do a big study and declare that a 2.45379% inflation rate has been deemed optimal in the new AI world.
I would argue that gold is a good inflation hedge over the long run. When one deals with markets, one deals with irrational exuberance and things are frequently mispriced. Over the long run, governments inflate their money supplies (especially modern welfare-warfare states). And, over the long run, gold will goes up relative to the inflated currency. As the saying goes, “the market can remain irrational longer than you can stay solvent.” Thus, gold can be mispriced for long stretches. But in the end, the price eventually adjusts.
No. Gold produces NO Revenue. Gold Provides NO Income. Gold gives No Tax Benefits and In the end Gold needs stored and protected or it’s Not really Gold you’re holding…it’s just paper or electronics that says you have Gold. But you don’t actually have Gold unless you’re physically in possession of it.
Plenty of other assets are tangible and produce income, revenue and tax benefits.
As doorstops go, gold is almost as good as depleted uranium.
Gold is saying prepare for war…
Gold is how the wealthy store their wealth, silver is how gentlemen pay their bills, and debt is for the peasants.
No. The wealthiest hold their wealth in businesses and / or in debt free Real Estate.
Gold is nearly useless for the average person and needs to be stored locally and protected, otherwise you don’t actually HAVE the Gold.
Gold is fine in both deflationary and inflationary events. It’s generally better “money” as opposed to fiat currencies. When things deflate, it may go down as well but it does much better against all asset classes except which ever senior currency exists at the time. Since the dollar will probably undergo a crisis of some sort, gold would be a great safety net except you need to have it in your hot little hands. When the cyberattacka wipe out your 401k etc.
There’s no science to economics. The FED’s technical staff doesn’t know a debit from a credit. Lorie Logan gives a prime example: “But in an efficient system, the costs of liquidity should be similar for banks and non-banks.”
I guess she didn’t understand Regulation Q ceilings.
You can short bitcoin as soon as the O/N RRP facility runs out. The FED has eased monetary policy. It’s definition of retail MMMFs is wrong. It double counts the money stock. So, actually the money supply is increasing.
–Michel de Nostredame
To:You
Mon 1/22/2024 10:12 AM
Spencer
Thank you for your question. Net assets of retail money funds are a component of the M2 money stock, while net assets of institutional money funds are not. For more information on the money stock measures published by the Federal Reserve, please see the H.6 statistical release (https://www.federalreserve.gov/releases/h6/current/default.htm). If an investor transfers funds from a deposit account at their bank and places the funds into a retail money fund, the funds are accounted for in the retail money fund component of the M2 money stock rather than in the deposit components of M2. If a money fund is holding funds with a bank in the form of a transaction account (e.g., demand deposit or other liquid deposit) or small-time deposit (time deposit held in amounts less than $100,000), then those funds would be counted in the money stock but those amounts are likely to be rather small.
Sincerely,
Board staff
It’s just like MSBs balances between 1913 and 1980.
TOWARD A MORE MEANINGFUL STATISTICAL CONCEPT OF THE MONEY SUPPLY
Leland J. Pritchard
First published: March 1954
Gold for me is a risk-diversifying asset which has bull & bear markets just like stocks or bonds. It’s not a CPI-inflation hedge, nor a dollar-index (vs. other currencies) hedge. It does look like a money-supply-inflation hedge at times. And it most definitely IS a time-tested hedge agains central bank and fiscal policy errors, geopolitical crises and other portfolio hazards.
Gold is going to be worth a lot more after the U.S. gets hit with an electromagnetic pulse for harassing all these nation states, and wipes out all the binary ledgers.
Not an inflation hedge. Really. In 1975 it took about 280 Oz of gold to buy a median price house. Today it takes about 190 Oz.
During the Roman Empire a working stiff marrying off his daughter was expected to cover his worn Toga with a custom made wool Tunic. The cost. 1 Oz of gold. Today a moderately priced custom suit can be had for, 1 Oz of gold.
You cherry picked one period out of 1000s of years. Gold tracks the destruction of purchasing power over long periods of time. And it always has.
An ounce of Gold has always bought a very nice suit of clothes or 10 barrels of oil. That is currently out of whack.
We are gonna do the monetization boogie and further rape the poor and middle class
The local multi alias idiot was telling me in 2019 that I was and anyone else holding gold was an idiot. Fast forward to today and gold has risen from Cdn$1700 to $2900 today, a gain of Cdn$1200/ ounce. I have also said previously that it is a given that gold will go to all time highs in all currencies. You didnt have to be a rocket scientist to predict that.
I see the local idiot was comparing S&P 500 to gold and wasnt that like a month ago. And of course gold hits highs shortly after.
I bought a 100K Euro of gold a odd 10 years ago, its now worth 200K Euro,not bad of course, if I had bought Bitcoin though I would ve been fckn rich !. A similar Nasdaq position would ve been worth 600 k ….Let s hope gold catches up at one point, maybe it will ,who knows …
It seems gold works on a 10 year cycle. You are correct that stocks outperformed gold over the last 10 years but look at 2001-2011. Gold outperformed stocks handily. The next 10 years look like it will be in gold’s favor.
The decade-long “Cup-and-Handle” formation on the Gold chart was completed in late 2022.
We are now 17 months into the “Bang-Zoom” aftermath and 33% higher already.
gold is going up because other central banks are buying it up. as long as the fed engages in financial repression (i.e. treasuries paying less than the real rate of inflation), gold will shine. long bonds are the toxic asset right now which wasn’t the case during prior periods of high inflation.
Long bonds were toxic in the 1970s. Imagine owning a 30y bond at 5% in 1970 and having to price it against new bonds w/ 18% yields in 1980s! Treasuries were not-so-affectionately known as “certificates of confiscation” during the high inflation of the 1970s.
Only after interest rates and inflation peaked out (and so did the gold price) were long bonds sensible choices.
the big difference between then and now is that we have “better” ways of measuring inflation that in no way is reflective of what people are actually spending. it understates inflation so badly that between the dismal return on treasuries and taxes that you pay on the interest, we are all helping bail the system out. the yield curve is another joke. the bond market has been broken since 2008, so the yield curve is about as useful as an economic indicator as reading the time of day from a broken clock.
I don’t get it. What can a monetary authority do about changes in climate?
Nothing – but it is a secondary mandate for the ECB and if Democrats controlled everything it would be a mandate for the Fed as well.
Does anyone out there think the Fed adhere to its 2.0 percent target?
Why, yes. The Fed will conspire with Dept. of Commerce to bugger the numbers down to 2.0% inflation.