Interest rates have had our attention lately. We’ve been keeping an eye on the rising US Treasury long bond rate. Earlier this week we also posted an article that looked at the recent move higher in LIBOR.
In this piece Stewart Thomson has an interesting theory that it will be rising interest rates that really kicks off much higher gold and gold mining stock shares prices. Which is the complete opposite of what the mainstream would say about the relationship of rising interest rates and gold…
Janet, Government, And The Woodshed
Graceland Updates 4am-7am
By Stewart Thomson
October 18, 2016
- The SPDR fund tonnage increased again yesterday, and now sits at 967 tons. This is obviously good news for all higher gold price enthusiasts.
- Please See below now. Double-click to enlarge. Gold is attempting to stage a nice upside breakout from a small symmetrical triangle pattern.
- In the short term, whether a rally happens or not probably depends on what happens with the bond market. Please see below now. Double-click to enlarge this short term T-bond chart.
- Since the Brexit vote occurred, both gold and T-bonds have been drifting lower. Sometimes gold leads the bond market. Sometimes it’s the other way around, but it will be difficult for gold to stage a major rally now without a bond market rally.
- In the big picture, inflationary pressures are rising significantly, and in 2017 a divergence in the gold-bonds relationship may start to manifest itself.
- Please see below now. Double-click to enlarge this long term gold stocks versus gold chart.
- Gold stocks have been in a long twenty-year bear cycle against gold bullion, and the cycle won’t be over until money velocity and bank loan profits end their own twenty-year bear cycles.
- I’ve suggested that 2017 is the year that happens. When it does, gold stocks should enter a multi-decade bull cycle that I would argue is better termed a “bull era”.
- Please see below now. CNBC commentator Rick Santelli recently flew into a rage when hearing the news that Janet Yellen may try to seek congressional approval to buy stocks.
- The average working class person in the Western world can’t afford to live normally anymore, even when working multiple jobs. Janet’s latest solution, horrifically, is to try to pump up the stock market even more than her predecessor already did with his crazed QE programs, and leave Main Street to rot.
- Some gold analysts may cheer for more useless QE and other silly central bank schemes, but these programs are highly deflationary for Main Street. From a demographics standpoint, the West is an ageing society, so by definition QE cannot fix anything.
- Attention gold stock enthusiasts: Inflating Wall Street and deflating Main Street does not create a bull cycle in gold stocks. It prolongs the twenty-year bear cycle. The bottom line is that QE is the disease, and rate hikes are the cure. Rate hikes end the madness of forcing an ageing society to move savings out of banks and into speculative investments to “promote growth”.
- QE destroys the standard of living of the Western world’s working and middle classes. It makes housing an investment rather than a place to live. It encourages crazed government bureaucrats to borrow even more money than they already have done. That money is then promptly wasted on ludicrous regime change and entitlement schemes.
- I have to wonder if the next program to “help” most of the Western world’s citizens will be for central banks to buy food commodities. That would make food an investment and completely annihilate the financial state of most citizens. Would Janet Yellen call that, “good news for inflation”? I don’t know. I would call it an act of lunacy.
- The only things that QE has inflated are houses and government bonds, and that is opening the door to an “endgame” type of scenario.
- Janet Yellen is going to have to face the fact that rate hikes are desperately needed to save Main Street from the government monster that is enveloping almost everyone, including the central bank. She’s also going to have to face the fact that the rate hikes are going to be followed by more PBOC devaluation of the yuan. The latest yuan devaluation is already in play now, in advance of an anticipated US rate hike in December.
- There’s not going to be any “making America great again”. The demographics of America are the demographics of a dying empire, regardless of who is sitting in the big White House chair.
- At some point, Janet Yellen and the rest of the Western world are going to have to accept that the West is out, and Chindia is in, in terms of empire leadership “action”.
- Rising rates fit well with an ageing society. It’s just common sense. Rising rates stop real estate speculation and lower rents. Also, many senior citizens can’t afford the higher property taxes that are now in play in this “healthy” real estate market.
- Going forwards, it’s madness to believe that roughly 350 million Americans can compete against 2.5 billion hungry Chindians. In a nutshell, it’s time for the West to retire from the empire leadership game, and enjoy that retirement.
- The government bond market Ponzi scheme must end, and the diabolical attack on America’s elderly savers must end. Cowards attack the elderly, and Janet Yellen should think very hard about that fact at her upcoming rate policy meeting in December. I think Janet will do the right thing, not just in December, but throughout 2017.
- I’m predicting that she is ready to begin raising rates more consistently, which is what she should have been doing from the start of the 2015 calendar year.
- Please see below now. Double-click to enlarge this key GDX chart. Like gold bullion, gold stocks appear to be “ripe for a rally”. Note the position of my 14,7,7 Stochastics series oscillator, at the bottom of the chart, but please see below now. If Janet Yellen doesn’t get away from promoting government borrowing and crushing savers, money velocity and bank loan profits are not going to recover, and gold stocks are going to go right back down to multi-decade lows against both gold and the dollar.
- Janet pulled the plug on QE, as I predicted she would. Now it’s time for her to stop doing the bidding of a debt-soaked government. It’s not time to make America great. It’s time to make it normal, by raising rates in December, and consistently in 2017. If she does that, gold stocks, money velocity, and bank loan profits will all soar while an out of control government gets taken to the woodshed, where it belongs!
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Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form. Giving clarity of each point and saving valuable reading time.
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