Pro Perspectives 3/7/24






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March 07, 2024

After hearing testimony from Jerome Powell the past two days on Capitol Hill, and after hearing from a slew of Fed speakers over the past week, the takeaway is that the Fed is comfortable not messing with an economy that seems to be doing well (for the moment) with a Fed Funds rate above 5%.

Still, despite highly restrictive monetary policy, we head into the February jobs report tomorrow morning with stocks on record highs.

On jobs, as we discussed yesterday it was a hot January jobs report and a big upward revision of the December payroll number that sent yields screaming higher in early February (to the tune of almost 50 basis points).  That said, the 10-year yield is down almost 25 basis points in just the past nine days.  Perhaps in anticipation of some downward revisions to come (in the jobs data)?

If we’re looking for a trigger in the economic data, at this point, that might disrupt the current drum-beat narrative of the Fed, it would be a softer employment situation (i.e. a threat to the “maximum employment” component of the Fed’s mandate).

Let’s take a look at gold …

Gold is making new record highs by the day.  Today was the sixth consecutive higher high, and higher closing price.  That has coincided with five consecutive lower daily closes on the dollar index.

If we look back at the events that aligned with the prior highs in the chart above, we have 1) the oil price shock and broad inflation shock of early 1980… 2) the collapse of Bear Stearns … 3) thirty-one years later gold finally surpassed the 1980 highs, and the catalyst was rising global sovereign debt risks, in the aftermath of the global credit bubble burst (gold spiked on the downgrade of U.S. debt and a European sovereign debt crisis)… 4) global war risk on Russia’s invasion of Ukraine … 5) 2023 bank runs and risk of contagion … 6) an 18% two month rise to a new record level originating from the October Hamas attack (global war risk) … and 7) currently gold is, unusually, sustaining these record high levels.

Notably, with the explosion in the money supply, the new record high prices in gold are clustering — which is bullish. 

With that, we’ve often looked at this longer term chart of gold over the years.

This is a classic C-wave (from Elliott Wave theory). This technical pattern projects a move up to $2,700ish.  The price of gold has continued to make progress along that path.  

How do you play it? 

Get leveraged exposure to gold through gold miners, or track the price of gold through an ETF, like GLD. 

Full disclosure, we are long gold miners, including Barrick Gold in our Billionaire’s Portfolio