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The precious metals markets have definitely tested even the most seasoned gold and silver bull over the last several years. Looking forward, recent market volatility and the ongoing foreign central bank gold acquisitions along with a push towards global de-dollarization. I suspect a reversal in precious metal price action is imminent.
It's my opinion, that one of the main contributors restricting precious metals price action has been the ongoing trade/currency war between China and the United States. Look for future negotiations along with China's actions to influence the direction of the U.S. dollar and CNY and ultimately how it impacts golds direction on this front. It is also important to note, Federal Reserve chairman Jerome Powell’s background in law presents a new set of challenges to markets. The last two Fed chairs were both economists, Janet Yellen and Ben Bernanke both hold a PhD in economics. At first glance this may not seem to have any bearing on how they chair the federal reserve, but Powell retains a linguistic tactical advantage. Last week, Powell delivered a speech at the Economic Club of New York and the market exploded after the speech buying into the prospect that the Fed was considering a monetary policy change. But, here’s exactly what he said, “Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy.” Of course, initially the markets interpretation of “just below” was an indication that the Fed was nearing the targeted overnight lending rate and rate hikes could soon be coming to an end. Based on the first week of Decembers trading activity, it appears markets have correctly understood his message, the hikes will continue.
Considering the Fed is using old and obsolete tools to compile data and predict markets, expect them to continue raising rates until something breaks. The strategy is simple and desperate, raise rates above 4% so they can cut and goose the economy out of a recession keeping rates above 0%. Unfortunately, if the U.S. falls into recession before rates normalize, the Fed will be forced to aggressively cut and launch a fresh round of QE….and the cycle continues. I expect this time things will be very different and old tactics will not yield the desired results.
U.S. and Canadian housing market sales have begun to cool due to higher rates and lending requirements, stock market volatility has also increased on the heels of steady rate hikes and quantitative taper. Despite these obvious signs of weakness and instability, the Fed continues to remove vital market liquidity.
There is a significant amount of discussion surrounding global de-dollarization. (the process of removing the U.S. dollar as the world reserve/trade currency) For those not well versed on the global monetary system and how the world uses it for trade I’ll keep this super simple. First, there is a very high probability that the current monetary system as we currently know it is about to undergo a global overhaul or reset. This is not unusual considering it has already happened three times in the last 100 years, 1914, 1939 and 1971. This reset will have an impact on the value of currencies worldwide, so we must all be prepared to preserve our wealth. It is a central banks job is to control a countries monetary policy, it should also be known that (some) are accumulating gold at an alarming rate. This aggressive accumulation in my opinion is being done to de-risk or insulate that countries domestic currency from the coming global monetary reset. In the very likely event that the U.S. dollar loses the privileged designation as the world reserve currency, central banks will require an alternative asset with globally recognized value.
I believe the asset of choice will be gold. Based on that prediction, it only makes sense that individual investors and institutions worldwide protect their wealth by dedicating 15-20% of an investment portfolio to a physical gold and silver position.
This will be one of the greatest wealth transfers of all time!
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In anticipation of a significant market event, it is important for investors to remain calm and keep a clear head. Fear and panic will only confuse and bring about poor decision making which can quickly devastate a portfolio. Take a moment now to review all your investments, access risk and reduce or minimize that risk. Contact you adviser or broker and ask them to clarify your current positions and outline the potential risks. Avoid margin! Markets fall quickly and this is not the time to test your luck with open margin accounts. Lastly, recognize an opportunity. When markets crash there are winners and losers, make sure you are strategically positioned to capitalize on the sectors that end up oversold. If you have any doubt or questions about your investments, please don’t hesitate to contact me directly. I work with experts in every sector, someone from my team will assist and offer clarity free of charge.
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