Golden Rule: Interest Rates Do Not Influence Precious Metal Prices

https://www.parametricportfolio.com/insights-and-research/interest-rates-do-not-influence-precious-metal-prices

Gold Performs Well Even When Interest Rates Rise

Many pundits believe rising interest rates are bearish for precious metals, since rising bond yields provide more effective competition against gold and silver, which pay no dividends.  By extension, the conventional wisdom is investors would then gravitate toward fixed-income investments (which pay a coupon) over physical gold or silver.  It's intuitively correct, but history shows it is mostly inaccurate.

Gold made its historic run up in the 1970's when inflation was rearing its ugly head.  More recently, the Fed raised interest rates a tick (reversing policy for the first time since 2008) in December 2015, which coincided with the bottom in gold.  The reason is because not only is gold a good hedge against inflation, but it performs even better when there is distress in financial markets and doubts about the soundness of currencies.

https://www.caseyresearch.com/heres-what-happens-to-gold-when-interest-rates-go-up/

Despite Trump rally, market direction will hinge on interest rates: Analyst Peter Boockvar

Peter Boockvar believes the decades-long bull market in bonds is over.  What comes next is pain.

http://www.cnbc.com/2016/11/09/despite-trump-rally-market-direction-will-hinge-on-interest-rates-analyst-peter-boockvar.html

Interest Rates and Gold

The decoupling of the inverse relationship between interest rates and the price of gold will cause the latter to rise to uncharted levels.

https://www.goldmoney.com/research/goldmoney-insights/interest-rates-and-gold-analysis

Fixes From The 70s Won’t Stop This Disaster

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/7/3_John_Embry_-_Fixes_From_The_70s_Wont_Stop_This_Disaster.html

There Will Never Be A Failed US Treasury Auction... Until There Is

http://www.zerohedge.com/news/guest-post-there-will-never-be-failed-us-treasury-auction-until-there

Will Higher Interest Rates Derail Gold?

I've always posited gold performs well during inflation--but even better during deflation.  And while negative real (inflation-adjusted) interest rates are bullish for gold, so are rising nominal interest rates.  The key component of a bull market in precious metals is a loss of confidence in the paper currency. 

http://expectedreturnsblog.com/will-higher-interest-rates-derail-gold/

Adens, Schultz, batten down hatches

http://www.marketwatch.com/story/adens-schultz-batten-down-hatches-2011-03-14

“Five Big Trends For The Next Five Years” with even more powerful articulation:
(1) Inflation is headed up.
(2) Gold and silver are headed up.
The Adens think the gold and silver rise could be more dramatic that the 1970s. However, they write:
“Let’s say it is similar to the 1970s, then as we mentioned last month, gold could eventually rise to about $6,000 and silver to $150. We’re not saying these will be the ultimate upside targets, but they could be.”
(3) The US dollar is headed down.
(4) Interest rates are headed up.
(5) Bond prices will fall.
Here the Adens say:
“Even though the Fed says they’re going to keep interest rates low to help the economy, they simply won’t be able to. The Fed can control short-term interest rates, but not long-term rates. And with the U.S. needing more and more money to finance all of its expenses, the marketplace will demand higher rates in exchange for the growing risk. Under the current circumstances, interest rates are poised to rise much further in the years ahead.”

Federal Reserve: Money-printing will continue at "full throttle"

http://www.thedailycrux.com/content/6607/Government_Stupidity/eml

That's an interesting take on rising interest rates--that the economy is recovering.  I believe the bond markets are starting to fear inflation more than anything else.  We shall see.

My belief is that hyperinflation is what we should guard against most, not deflation.  Americans don't complain when their heating and grocery bills decline.  Again, we shall see.

The biggest holder of US debt is now Ben Bernanke

http://www.zerohedge.com/article/today-biggest-holder-us-debt-united-states-america

...the Fed's official holdings of US Treasury securities now amount to $891.3 billion, which is higher than the second largest holder of US debt: China, which as of September 30 held $884 billion, and Japan, with $864 billion.

Finance 101:  when interest rates rise, bond prices decline.

Fed may go bankrupt

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2010/11/5_Jim_Rickards_-_Fed_May_Go_Bankrupt.html

Right now the Fed’s balance sheet shows about $57 billion in total capital. Current assets are about $2.3 trillion. The current money-printing plan will take total assets above $3 trillion. At that level, it only takes a 2% decline in asset values to wipe out the Fed’s capital. Put differently, it only takes a 2% drop in the average value of assets on the Fed’s balance sheet for the Fed to go bankrupt. And this is in an environment where various markets frequently go up and down 3% in a single day.

The Fed is saying don’t worry about mark to market losses because we will hold the bonds. The Fed is saying don’t worry about inflation because we will sell the bonds. Both of those statements cannot be true at the same time. You can hold bonds and you can sell bonds but you can’t do both at once. You will want to sell when rates are going up but that’s when losses will be the greatest. So the time when you most want to sell is the time when you will most want to hold.

So, here’s the bottom line on money printing, or QE if you prefer. If nothing happens, the whole thing was a waste of time. If inflation takes off, the Fed will have to choose between holding bonds and letting inflation get worse or selling bonds and going bankrupt in the process. Since no entity goes down without a fight, the Fed will naturally hold the bonds and let inflation take off. Do not ask about the exit strategy from QE; there is no exit.

Sheila Bair on the bond bubble

Wow--did I hear that right? Sheila Bair of the FDIC just admitted interest rates will back up eventually and there does exist a "bit of a bond bubble." I will post the video up if/when Bloomberg does.

China hints it could dump U.S. bonds

http://www.moneynews.com/Headline/China-Fires-Shot-Over/2010/09/14/id/370164

The Chinese dumping US bonds will cause yields and interest rates to soar, which will unravel any hopes of a US economic recovery. Is Congress really thinking this through in accusing the Chinese of currency manipulation and threatening to impose import tariffs? My short answer is no.

Alan Greenspan: The Financial System Is Broke

Visit msnbc.com for breaking news, world news, and news about the economy

http://www.msnbc.msn.com/id/21134540/vp/38510073#38510073

MR. GREENSPAN: Yeah, yeah. I, I would say that there's nothing out there that I can see which will alter the, the, the trend or the level of unemployment in this context.

MR. GREENSPAN: Well, the problem there implies that the government has control over those rates, meaning the Federal Reserve and the Treasury Department, in a sense. There is no doubt that the federal funds rate, that is the rate produced by the Federal Reserve, can be fixed at whatever the Fed wants it to be, but which the government has no control over is long-term interest rates, and long-term interest rates are what make the economy move. And if this budget problem eventually merges to the point where it begins to become very toxic, it will be reflected in rising long-term interest rates, rising mortgage rates, lower housing. At the moment, there is no sign of that, basically because the financial system is broke and you cannot have inflation if financial system is not working.

There's nothing like the truth coming from a former Fed Chairman. Greenspan is correct in this case: bond vigilantes will punish the US Treasury bond markets in demanding higher yields on long-dated Treasury bonds, forcing up long-term interest rates. They will also drive down the value of the USDollar, as the US government's ability to pay its obligations will come under question. It's not a matter of if, but when the steepening of the yield curve will occur.

Here is an article addressing the steepening of the yield curve from 2009.

http://www.reuters.com/article/idUSTRE54U1NZ20090531

M3

Click on chart to enlarge.

When money supply M3 (dark blue line) declines this precipitously, the chances of an economic recovery decline with it. By the way, M3 is no longer recorded as an official government statistic. Hmmm...

Almost two years of zero interest rate policies have not revived the economy or brought unemployment numbers down. 4.5% mortgage rates have not resuscitated the housing market. Fed Chairman Ben Bernanke was hinting at exiting fiscal stimulus programs a few months ago due to a "recovering economy."

I see failure. "Jobless recovery" is an oxymoron. The Fed's only hope is more monetary stimulus, more printing of USDollars, a second round of quantitative easing, debt monetization, etc., whatever opaque choice of words our government officials use. After all, they can't lower interest rates below zero.

In order to combat deflation, Bernanke's biggest fear, QE 2.0 will be implemented after the next financial crisis, to once again "save our financial system." But all it will do is stoke inflation, while debasing the Dollar, and reducing our standard of living.

The financial con

http://www.zerohedge.com/article/financial-con-decade-explained-so-simply-even-congressman-will-get-it

Of course, to those familiar with the work of Austrian economists, none of this will come as a surprise.

1. Enable trillions of dollars in mortgages guaranteed to default by packaging unlimited quantities of them into mortgage-backed securities (MBS), creating umlimited demand for fraudulently originated loans.

2. Sell these MBS as "safe" to credulous investors, institutions, town councils in Norway, etc., i.e. "the bezzle" on a global scale.

3. Make huge "side bets" against these doomed mortgages so when they default then the short-side bets generate billions in profits.

4. Leverage each $1 of actual capital into $100 of high-risk bets.

5. Hide the utterly fraudulent bets offshore and/or off-balance sheet (not that the regulators you had muzzled would have noticed anyway).

6. When the longside bets go bad, transfer hundreds of billions of dollars in Federal guarantees, bailouts and backstops into the private hands which made the risky bets, either via direct payments or via proxies like AIG. Enable these private Power Elites to borrow hundreds of billions more from the Treasury/Fed at zero interest.

7. Deposit these funds at the Federal Reserve, where they earn 3-4%. Reap billions in guaranteed income by borrowing Federal money for free and getting paid interest by the Fed.

8. As profits pile up, start buying boatloads of short-term U.S. Treasuries. Now the taxpayers who absorbed the trillions in private losses and who transferred trillions in subsidies, backstops, guarantees, bailouts and loans to private banks and corporations, are now paying interest on the Treasuries their own money purchased for the banks/corporations.

9. Slowly acquire trillions of dollars in Treasuries--not difficult to do as the Federal government is borrowing $1.5 trillion a year.

10. Stop buying Treasuries and dump a boatload onto the market, forcing interest rates to rise as supply of new T-Bills exceeds demand (at least temporarily). Repeat as necessary to double and then triple interest rates paid on Treasuries.

11. Buy hundreds of billions in long-term Treasuries at high rates of interest. As interest rates rise, interest payments dwarf all other Federal spending, forcing extreme cuts in all other government spending.

12. Enjoy the hundreds of billions of dollars in interest payments being paid by taxpayers on Treasuries that were purchased with their money but which are safely in private hands.

BIS warns financial system vulnerabilities

Speaking of the BIS, their report warns of another impending financial system collapse if structural debt problems aren't treated.

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2010/6/28_Secretive_and_Powerful_BIS_Annual_Report_Released.html

“When the transatlantic financial crisis began nearly three years ago, policymakers responded with emergency room treatment and strong medicine: large doses of direct support to the financial system, low interest rates, vastly expanded central bank balance sheets and massive fiscal stimulus. But such powerful measures have strong side effects, and their dangers are beginning to become apparent.”

“Here are the worst problems arising now from the continued use of the extraordinary programmes: Direct support is delaying vital post-crisis adjustment and runs the risk of creating zombie financial and non-financial firms. Low interest rates at the centre of the global economy are discouraging needed reductions in leverage, thereby adding to the distortions in the financial system and creating problems elsewhere.”

“The sustained bloat in their balance sheets means that central banks still dominate some segments of financial markets, thereby distorting the pricing of some important bonds and loans, discouraging necessary market-making by private individuals and institutions, and increasing moral hazard by making it clear that there is a buyer of last resort for some instruments. And the fiscal stimulus is spawning high and growing government debt that, in a number of countries, is now clearly on an unsustainable path.”

“The financial disruptions in the first half of 2010 have brought the fragility of the industrial world’s financial system into stark relief: a shock of virtually any size risks a replay of the events we saw in late 2008 and early 2009. The sovereign debt crisis in Greece is clearly jeopardising Europe’s nascent recovery from the deep recession brought on by the earlier crisis.”

“Unlike then, however, we have hardly any room for manoeuvre. Policy rates are already at zero and central bank balance sheets are bloated. Although private sector debt has started to decline, public debt has taken its place, with sovereign fiscal positions already on an unsustainable path in a number of countries. In short, macro-economic policy is in a vastly worse position than it was three years ago, with little capacity to combat a new crisis – it will be difficult to find a source of further treatment should another emergency arise. Regaining the ability to react to economic and financial crises, by putting policies onto sustainable paths, is therefore a priority for macroeconomic policy.”

Central bank and BIS intervention--circa 1983

This should lay to rest any questions whether central banks intervene in foreign currencies, interest rates, and gold markets.

http://www.edwardjayepstein.com/archived/moneyclub.htm

The point of no return

http://seekingalpha.com/article/204882-beyond-the-point-of-no-return-you-need-to-buy-gold-bud-conrad

Louise Yamada on markets

Louise Yamada, a technical analyst extraordinaire, weighs in on equities, bonds, interest rates, and commodities, including gold and silver.



http://www.cnbc.com/id/15840232?play=1&video=1487900029