“interest Rate Hikes” And Precious Metals

Modigliani painting sold yesterday for $170.4 million; and it wasn’t even the top art auction ever – coming in second to last year’s $179.4 million Picasso sale.  I’m guessing that neither weighed more than ten pounds – compared to the 10,381 pounds that the 151,385 ounces of registered gold on the COMEX exchange, worth $164.8 million as I write early Tuesday morning, weigh.  In fact, said gold’s value fell by $833,000 in the first minute of COMEX trading this morning – whilst likely, not a single ounces of actual metal was sold.  And this, at a time when global demand for physical gold and silver is at an all-time high, just as it for rare artwork.

Of course, rare artwork is only trading at an all-time high due to monetary inflation; which inevitably, will be undermined by the greatest deflationary wave in modern times.  Gold and silver demand, on the other hand, will be relentlessly buoyed by fear that the very currencies that are being inflated – and eventually, hyper-inflated – will become worthless, as every previous fiat currency has.  Now, more than ever – as we are unquestionably amidst the “worst global economy of our lifetimes” – coincident with the final, lunatic stage of history’s largest, most destructive fiat Ponzi scheme.

To that end, yesterday’s “direst prediction of all revisited – more dire than ever” couldn’t have been more prescient – as this morning, the “attack of the sevens” is the day’s top story.  As in, a new seven-year lows for the world’s most broadly industrial commodity, “Dr. Copper” – or as I deemed it 18 months ago, when it was still $3.20 lb. (versus $2.24/lb. today), “Dr. Death”; as well as the stock of the world’s largest mining company, BHP Billiton.  More ominously still, the Euro currency has also plunged to a seven-year low – on the cusp of breaching the 12-year low set earlier this year – as the global commodity crash is exploding as we speak.  And oh yeah, the ECB is not only preparing to expand QE next month – when LOL, the Fed wants to “raise rates”; but in a big way, per yesterday’s viral quote from an “anonymous ECB board member,” saying “let’s go for a big rate cut.”  Which, considering the ECB’s benchmark rate is already negative, is quite a mouthful.  And geez, zinc is down a whopping 3% this morning, to its own seven-year low – putting both the metals Glencore relies on below the lows achieved at the height of the Glencore frenzy last month; which obviously, is just getting started.

To that end, things are getting so ugly in the global economy, yesterday’s 19% plunge in China’s October imports were trumped by this morning’s 25% collapse in Philippine exports.  Not to mention, the much-worse-than-expected 0.5% plunge in U.S. October import prices, as WTI crude prices imploded below $44/bbl.  But don’t worry, every FOMC statement for the past year has said the following, so everything will be fine.

“The Committee expects inflation to rise gradually toward 2% over the medium term as the labor market improves further, and the transitory effects of declines in energy and import prices dissipate.

By the way, here’s how energy and import prices have performed since this statement was first introduced by Whirlybird Janet on December 17, 2014.  That is, eleven months ago – which constitutes the “medium-term” in most people’s view, even if the Fed will never define it.  I mean, talk about a complete “credibility implosion.”  And regarding the former, last week’s news that Saudi Arabia increased its “discount” to global prices to its highest level since oil’s 2009 bottom; or OPEC’s Secretary, this morning, claiming non-OPEC members must share the burden of the oversupply; or British Petroleum espousing that oil won’t exceed $60/bbl until at least 2019, whilst the IEA, or International Agency, claimed 2020 as a more likely “recovery timing,” underscores just how massive the glut has become.  And don’t forget, all you “U.S. recovery” believers – the U.S. shale oil industry, which was by far the biggest incremental employer of the past five years, is not only the world’s high-cost oil producer, but financed by $500 billion of junk bonds and “leveraged loans.”  Let alone, hundreds of billions of collapsing equity, rammed down investors throats by ZIRP-abetted Wall Street and “private equity” funds.

As for the Fed’s hoped for “labor market improvements”;  aside from the complete farce Friday’s October NFP report was (according to Zero Hedge, “no one with an IQ greater than their shoe size – save corrupt, captured American economists – buys it”), check out these graphs of the likely path of U.S. employment, if you have any lingering doubts.  Which eerily compare to those in 2008; whilst corporate revenues, which for the first time since the first three quarters of…drum roll please…2009, have declined for three straight quarters.  Even the Fed’s own household survey depicts plunging income expectations; and with the gap between corporate inventory and sales at an all-time high, it’s hard to believe anyone could still believe retail employment has anywhere to go but down.  Heck, even Apple, the company that can do no wrong, announced today it is cutting orders for iPhone 6S components, due to weak demand!

Which brings me to today’s primary topic, given how fearful Precious Metal investors have become; albeit, less so for the savers that view their long-term wealth in terms of ounces – knowing full well that the laws of “Economic Mother Nature” cannot be reversed in the physical markets, even if they decidedly can in the fraudulent, speculative paper arena.

Not that I haven’t discussed this countless times before; as heck, the Fed’s imminent rate hike” propaganda goes all the way back to April 2013 – “coincidentally,” just after Obama’s April 11^th, 2013 “closed door meeting” with the CEO’s of the “too big to fail banks.”  That very day, Goldman Sachs – whose “god’s work” CEO, Lance Blankfein, likely chaired the meeting – issued an “aggressive short sell” recommendation on gold.  Which, “coincidentally,” was followed by the Friday, April 12^th and Monday, April 15^th “alternative currencies destruction” raids.  During which, for no apparent reason, paper gold and silver prices were annihilated, by13% and 20%, respectively.  It was precisely at that point that the Fed started speaking of “tapering” QE, whilst trumpeting the “recovering” economy, and its desire for an imminent “exit strategy.”

From that day on, the Cartel’s viciousness has known no bounds – attacking Precious Metals no matter what the “news.”  Just as the PPT has relentlessly goosed stocks – like yesterday’s “worst day in six weeks,” in which the “Dow Jones Propaganda Average,” following a spirited “hail mary” rally, fell by, I kid you not, 1.000%; i.e., the PPT’s “ultimate limit down,” just like the “Cartel’s “ultimate limit up” of 1.0% for gold and silver and 99% of all trading days.  Frankly, the parallels are uncanny – which makes sense, given the propaganda emanates from the same sources.  Such as, for example, “attributing” Precious Metal declines to contradictory factors – like one day, claiming a “strong” economy is reducing Precious Metals demand due to a lack of safe haven demand; and the next day, claiming a weak economy is prompting PMs to sell off due to “deflationary fears.”  Heck, in the past week alone, Bloomberg blamed an “equity selloff” on fears that the Fed would raise rates – whilst Reuters attributed an “equity surge” on confidence that…drum roll please…the Fed would raise rates!

Let’s face it.  Anyone that actually believes raising rates could have even the slightest positive impact – on anything –should be put in the aforementioned category of those with IQ’s below their shoe sizes.  Let alone, the type of minuscule, infinitesimal hikes the Fed is talking about; when even massive hikes, of hundreds of basis points, wouldn’t push real rates above the true cost of living.  Which, I might add, even Vice Chairman Stanley Fischer owned up to last week!  I mean, we’re talking about an historically indebted world – with debt levels, from all corners of the planet, and all categories – rising parabolically, with nowhere to go but up.  In other words, a Ponzi scheme by definition – which must grow exponentially larger to survive, and do so without a catastrophic loss of confidence.  Most of all, in the Federal Reserve itself, whose $4.5 trillion balance sheet – which hasn’t “tapered” one iota since that fateful day in April 2013 – is the history’s largest; most heavily levered; highest duration; and given that it was built by being the “buyer of last resort” of toxic Treasury and Mortgage-backed bonds, the most overvalued, and vulnerable, as well.  And geez, I haven’t even mentioned the balance sheet of its masters at the U.S. Treasury – whose “on balance sheet” debt of $18.5 trillion is history’s largest, but pales in comparison to its “off balance sheet debts” of many multiples more!

Simultaneously, the U.S. dollar – as I said it would two years ago – is exploding higher as the global commodity crash accelerates; putting most currencies at all-time lows, and many in danger of all-out collapse.  Everyone from corporate America, to Wall Street, to the White House itself is violently against a higher dollar – as amidst said “final currency war,” the only hope, misguided as it is, of retaining manufacturing jobs is via a weakened currency.  And now that everyone, including China, are actively devaluing their currencies, would the U.S. government really tolerate a rate hike now?  Let alone, in an election year, when Whirlybird Janet’s only hope of re-appointment is by a Democratic President?  And don’t forget, no one is losing manufacturing jobs faster than America!

That said, what if the Fed did raise interest rates; LOL, from a “range of 0.00%-0.25% to 0.25%; or god forbid, 0.5%?  Particularly given that, whatever they did do, would be accompanied with wildly dovish language.  Under such a scenario, do you really believe this would cause physical Precious Metals demand to decline – when it’s already at record levels?  I mean, the Fed set rates at zero in 2008, yet gold has been “plunging” since 2011, despite an ever weakening global economy; historic levels of QE; and essentially every Central bank at or near record low interest rates as well.

Not to mention, it is only “dollar-priced gold” that has materially declined – as in nearly all other nations, prices have been rising.  In Europe, for example, the ECB is on the verge of expanding QE and taking rates further negative; whilst in Japan, Shinzo Abe’s “two-year” Abenomics plan has now been, for all intents and purposes, extended “to infinity.”  The People’s Bank of China is now actively devaluing the Yuan; the Swiss National Bank is monetizing U.S. tech stocks (like Valeant Pharmaceuticals); and countless Central banks are devaluing their currencies despite them hitting all-time lows.  Such as, per yesterday’s article, the Reserve Bank of India.

Last but not least, after 15 years of suppression – mining production of gold and silver has clearly peaked – with any further declines in price likely to exacerbate that historically dire situation further.  And particularly in the copper, lead, and zinc industries – which unlike gold and silver, are experiencing historic amounts of oversupply.  To that end, given that roughly half the world’s silver production emanates as byproduct from base metal mines, anything that pushes base metal prices down further – like Fed rates hikes, for instance – will only make this situation worse as well.  And then there’s that little thing called physical demand – which, following all major Cartel raids of the past four years, has stair-stepped higher, to the point that on a global basis, demand has never been higher.  Including, I might add, after this July’s “Sunday Night Paper Massacre”; after which, Miles Franklin experienced its strongest ever quarter of demand – focused principally, I might add, on silver.

In other words, for as stressful as the past four years have been, the absolute last thing I worry about least is a Fed rate hike.  Firstly, given how astronomically stupid – and likely, suicidal – such a move would be to the Fed’s own best interests.  Holding gold and silver, my view is that, if the Fed were actually stupid enough to raise rates into a collapsing global economy – and surging dollar – in a vain attempt to “save face” after 15 years of destroying the world with money printing, the net result would be wildly bullish for physical demand, and catastrophically dangerous for almost anything else.  And even if, like 2008, the Cartel is able to push paper prices down further, the odds of an unparalleled split between the paper and physical markets would likely surge.Similar Posts:

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