Gold is Sniffing Out the Mouse Trap

Students of history, and those who traded through it, will note that the best asset to own in the 1970s was gold, which went from $35 an ounce at the beginning of the decade to as high as $850 by 1980. 

Gold, silver, and the miners are surging today, with gold printing a nominal new all-time high, as Fed Chair Jay Powell and his band of merry printers at The Fed continue to talk up rate cut hopes coming sooner than later even with inflation not quite "at target," whatever that even truly means. 

The take-home message is that gold has a rich history of performing extraordinarily well in the face of a dovish Fed when the market diagnoses the economic situation as not being appropriate for a dovish Fed. 

In other words, gold is there to sniff out and punish egregious monetary blunders. 

You may counter, as many have and still do, that gold did not really punish Ben Bernanke, then Yellen, even the early Powell years. That is true. 

So, what is the difference now?

The difference is that the long period of deflation during and following the Great Recession/Financial Crisis is over: All of the slack in the economy has been picked up, so to speak. And what is left is entrenched inflation. Now, even with some softening labor and select (Texas, Florida) real estate markets, the overall inflation picture is still not likely appropriate for a rate cut. 

And that, again, is partly why gold is surging alongside positioning considerations (which basically means everyone is still vastly underweight precious metals and miners). 

What most fail to realize is that, as an entity, The Fed has been on one of the longest hot steaks any gambler has had in world history. 

Like the old Sinatra song, though, we are not in Heaven on Earth. Eventually we have reality to face. 

A parabolic move higher or even outright gamma squeeze in gold/silver/miners is now more of a threat than at any previous time in recent memory. 

Heaven, I'm in Heaven
And the cares that hung around me through the week
Seem to vanish like a gambler's lucky streak
When we're out together dancing cheek to cheek