The Dollar Grabs the Spotlight

Although President Trump originally named Jerome Powell to beChairman of the Federal Reserve Board, Trump’s big beef with Powell was about interest rates.Trump wanted lower rates to juice the economy.

Nevertheless, he appointed Kevin Warsh to replace Powell even though Warsh is believed by some to be an inflation hawk, prone to favor higher rates. As a former Fed governor Warch has expressed concern repeatedly with prolonged easy money and a discomfort with large Fed balance sheets.

And so we are in something of an apparent contradiction. And so far, Warsh’s first meeting held rates steady, not lower. Some officials even projected possible hikes later this year.

So the apparent conflict in aims is real. : Trump wanted easier money, but at the June 17 Fed meeting Warsh did not deliver. His more hawkish stance has driven a rally in the U.S. dollar.

This has created medium-term pressure on gold and silver prices, as Wall Street and hedge fund trades have liquidated gold in favor of dollar holdings.   However, Warsh and the Fed face a challenge from today’s rates that won’t go away.  Prevailing rates are a drag on the domestic economy, most visibly a headwind to the housing market.  And they make the already challenging cost of servicing Washington’s $40 trillion debt into a  debt-compounding problem. 

Meanwhile, Gulf nations and others impacted by the Iran war have had to sell gold to meet fiscal their revenue shortfall.  Now with oil beginning to flow again, we expect to see those nations begin to rebuild their gold reserves. 

For years we have encouraged our friends and clients to take advantage of any breaks in the prices of gold and silver to add to their positions.  The results have been spectacular.  That is because unbacked printed money or money created with a digital keystroke simply cannot compete with the real money of the ages, money that cannot be created by acts of legalized counterfeiting by governments.

To further demonstrate the point, here is a long-term chart, one dating back more than a centur,  showing multiple examples of the failure of leading fiat currencies compared to gold.  

It is a chart that speaks for itself.