Pro Perspectives 12/10/19

December 10, 2019

The Fed meets tomorrow.  It should be a non-event. 

As we discussed yesterday, the Fed is no longer following the “wait and see” strategy when it comes the the potential of an endless trade war.   With three rates cuts and balance sheet expansion at a better than trillion-dollar annualized pace, they are positioned for the worst-case scenario — and not likely moving until proven otherwise.

With global QE back to full speed, and the growing likelihood that Europe will follow the lead of the U.S., and now Japan with aggressive fiscal stimulus (i.e. deficit spending), is it time to buy gold again?

Gold was unusually up today in a market that carried a relatively positive tone for the day.

But as you can see in the chart below, gold has been on the move lower since the Fed has been expanding the balance sheet.

At the depths of the global financial crisis, when the Fed launched QE, gold started the sharp climb from sub $700 to over $1,900 — all on the fear that QE would trigger runaway inflation.  It didn’t happen.  By the time QE2 and QE3 rolled around, the behavior of gold prices changed.  Gold went up in anticipation of QE.  But gold went down when the Fed actually starts expanding the balance sheet.

I suspect the time to buy gold will be the trade war overhang is officially cleared, and the global economic data starts producing positive surprises, especially in inflation.

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