US stocks finished the session higher overnight. But the real star of the show, as it’s been for a few weeks now, was gold…and silver.
The gold price hit US$1,870 an ounce overnight, up around 1.5%. Silver soared more than 8%.
I don’t pretend to understand silver. All I can tell you is that relative to gold, it is cheap from a historical perspective. But it’s been relatively cheap for years.
I’m not sure why the market has all of a sudden decided now is the time to buy it.
It’s obviously got something to do with the speculative fervour going on in markets right now.
Silver is the NASDAQ of hard money types.
What about inflation, I hear you ask? Isn’t that why it’s rising?
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All the post-COVID money printing will surely lead to inflation. That’s why gold and silver are soaring right now…right?
One thing I can say is that gold and silver are not rising because of fears of inflation. Some may be buying because they fear inflation. If so, they’re right on the trade, but wrong on the reason.
Why is inflation not an issue?
It’s partly got to do with China. I’ll get to that in a moment.
First, let me show you concrete evidence that the precious metals are not pricing in inflation.
Look at the US 10-year Treasury yield…
Source: Wall Street Journal
Overnight, the yield on the benchmark bond declined to its lowest level since early April.
If there’s an economic recovery, or looming inflation coming from the idiotic Fed’s stimulus attempts, the bond market doesn’t see it.
To be precise, it saw it for a fleeting moment. In early June, when it looked like the worst of the shutdowns were over, the yield hit a high of 0.90%. That was 5 June.
That was the exact date of the short-term low, as you can see below…
Ever since, bond yields have declined (meaning their price has increased) and gold has followed along.
Now, you might argue that the Fed is buying up all these treasuries so of course the bond market isn’t going to provide the inflation signal, but gold is!
Again, I respectfully say bollocks to that.
The Fed wants inflation. Desperately. (It’s got it in spades in assets prices, but I’m talking about inflation in the real economy.)
Do you think it wants to keep bond prices pinned lower, when higher yields would signal it’s winning its battle over deflation? Of course not.
And if there really was inflation in our future, do you think private investors would be happy to hold bonds at all time highs? Of course not. They’d be dumping them hand over fist.
Bonds and gold are telling you something far more important than ‘inflation’.
They’re telling you that the central bank’s efforts to ‘fix’ things will fail. Just like they have ever since the GFC in 2008.
The monetary system is inexplicably broken. All the ‘money printing’ in the world won’t boost the economy or wages, because banks won’t lend.
This break up with China though will come at a massive cost
Where does China come into it?
Well, back in 2008, China was in much better shape.
It led the global economy recovery from that crisis. And that was to the immense benefit of Australia.
This time around, China is in all sorts. It’s like the lone drunk guy at the bar. Its life is a mess, so it picks fights with everyone. It is in no state to lead a global economic recovery.
To make matters worse, the West is fighting back against China. The US is leading the fight and Australia will be lucky to avoid copping a barstool in the head.
The latest news in this brawl?
Let’s turn to the Wall Street Journal:
‘The U.S. ordered the abrupt closure of the Chinese Consulate in Houston, accusing China of extensive interference in domestic affairs and intellectual-property theft, an escalation of bilateral tensions that Beijing called outrageous and unprecedented.
‘The State Department, in a statement on the closure, accused China of conducting “massive illegal spying and influence operations throughout the United States against U.S. government officials and American citizens,” and said such activities have increased in recent years.’
This is huge. And in the lead up to the November elections, it won’t stop.
But it’s not the main game. This is just smoking out the infiltrators.
The US is conducting an economic war against China. And it will win.
Because China is inextricably connected to the global financial system. As a result, it has a huge reliance on, and need for US dollars. The US dollar is China’s Achilles heel.
I don’t have the time or space to go into the details of that today.
But I have spent considerable time over the past few months working on a report that goes deep into this issue. Keep an eye out for that tomorrow.
It also explains Australia’s role in all this.
It’s not just the US that is taking it to China. Australia is too.
It’s a highly-risky strategy, feuding with our largest trading partner. But standing up for principles is better than selling out for the dollar.
This break up with China though will come at a massive cost.
To see why, and find out what you can do about it, keep an eye on your inbox tomorrow.
For now, take with a grain of salt the claims that inflation is at hand. The bond market (and gold) are pointing to continuing tough times ahead.
I’ll continue this conversation tomorrow.
Editor, The Rum Rebellion