National debt crisis possibility, the Fed and dollar weakness result in gains for gold

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Editor’s note: This is possibly one of the most important shows that we have produced this year and differs very much from the opening letter.

It differs in that today’s show focus is upon the Supercycle of gold and the effect to the Federal Reserve’s monetary policy had during periods of recessions and the following economic recovery. Based upon our analysis we see a high probability that we have entered a multiyear price decline in gold. This is based upon the study from 2009 to the former record top that occurred in the middle of 2011, the multiyear decline which took gold from $2019 down to $1040 at the end of 2015.

We then compare this study to the current monetary policy of the Federal Reserve in which like the recession of 2009 used quantitative easing to temper the recession, and help with the economic recovery that followed. Most specifically we compare what occurred when the Federal Reserve began to normalize interest rates, and unwind their purchase of assets by tapering in both instances.

This is a must-watch show!!       Below is today's opening letter

A multitude of factors resulted in a strong upside move in gold, gaining a little over 2% on the day. Today, Janet Yellen, the Treasury Secretary of the United States, testified before the House Financial Services Committee. During her testimony, she made a dire prediction if the United States cannot meet its debt obligations. This will occur if U.S politicians are unable to pass legislation to raise the debt ceiling. According to the Treasury Secretary, the government would not be able to meet its financial obligations if, by October 18, no legislation is passed to raise the debt limit, which is currently restricted at $28.4 trillion.

According to Reuters, “Yellen, asked by a member of the House Financial Services Committee if the damage done by failure to meet the federal government’s debt obligations would be irreparable, answered: Yes.”

Janet Yellen has warned of dire consequences if Congress remains deadlocked over passing legislation that would raise the debt limit on several occasions. However, in this instance, the government has only 19 days before the government runs out of cash. Secretary Yellen warned that after October 18, “We won’t be able to pay all of the government’s bills.”

She also warned that “As we saw in 2011 when the debt ceiling was raised at the absolute last minute, [we saw] investor and consumer confidence shaken. What would happen this time around is an increase in interest rates and a selloff in stocks.”

This was only one of the factors on gold investor’s radar which took gold higher today. Chairman of the Federal Reserve also testified with Yellen today. During his testimony, Powell backstepped the more hawkish tone that was evident during his press conference earlier this month. At the press conference by Powell he said that the Federal Reserve would begin tapering its $120 billion monthly asset purchases “soon”. He suggested that tapering could begin as early as November of this year. His statements were based on the belief that inflation levels were transitory and that they were reaching their goal of strong employment in the United States. However, today Chairman Powell said that “We are far away from full employment, so that gives us an incentive.”

Lastly, it was reported today that new claims for unemployment benefits increased last week. This might’ve been a factor in Chairman Powell’s testimony today, in which he backed away from the more hawkish tone presented at his press conference following this month’s FOMC meeting.

Adding to these fundamental events today, another bullish factor taking gold higher was dollar weakness, short-covering and buying the dip sentiment which occurred in the futures markets.

These factors resulted in solid gains in gold, with the December 2021 Comex futures contract currently at $1757.50, which is a net gain of $34.60, or 2.01%. It highly underscores the sensitivity of gold pricing as it reacts to a headline-driven market in this case creating bullish rather than bearish market sentiment.

Whether this newfound bullish sentiment will persist is dependent on multiple fundamental events. These include future statements from Chairman Powell, whether or not Congress can pass the legislation needed to raise the debt limit in the United States. On Friday, the most current inflationary data will be released when the Census Bureau releases its most recent data vis-à-vis the PCE (Personal Consumption Expenditures) inflation rate. The PCE is the preferred inflationary measure by the Federal Reserve. It differs from the CPI in that it strips out food and energy costs.

The economic recovery in the United States is fluid, and the outcome of the issues mentioned in this article is yet to be written.

Wishing you, as always, good trading and good health,


Gary S. Wagner - Executive Producer