Fed Between a Rock and a Hard Place

This week the Federal Reserve announced that it discussed, at its meeting three weeks ago, end­ing the reduction of bonds on the central bank’s balance sheet before the end of 2019, according to minutes released Wednesday.

Almost all participants thought that it would be desirable to announce before too long a plan to stop reducing the Federal Reserve’s asset holdings later this year. Such an announcement would provide more certainty about the process for completing the normalization of the size of the Federal Reserve’s balance sheet, according to notes from that meeting three weeks ago.

The U-turn when “Powell caved” is evidenced not only in stocks but in my IDW as well. The horrific heart-stopping, near economic cataclysm that took place in 2008 is still fresh in the minds of central bankers. None of them want to be blamed for the next financial market collapse, which may be the last within the existing monetary system.

The Fed is between a rock and a hard place. It seems as though the stock market is controlling Fed action so if every time the market throws a hissy-fit when rates cause stocks to go down the Fed follows by pumping more money into the system, we face a potential hyperinflation that would bring it even higher interest rates and big, big trouble for the United States’ $22+ trillion debt servicing requirement.

It’s hard for me to envision a more bullish environment for gold and this week Michael Oliver (www.OliverMSA.com) reminded his subscribers not to be fooled by the price chart shown on your left, because, like the chart I published on the front page of my February monthly letter, momentum has broken through, allowing Michael and his subscribers to be assured that we are at the start of a major run higher in gold. Personally, I took advantage of this price chart to sell some GDX profitable calls a few hours before many investors, unaware of Michael’s successful work, sold gold. Then I got back on the long side of GDX by buying some GDX April 5 calls with a $23.50 strike price on Friday. Aside from the GDX calls, I also bought some September 20 Sandstorm Calls with a US$6.00 strike price. This week I also sold Skeena at a loss and Ascot Resources because I believe Sprott’s involvement is keeping a lid on that company’s share price. Skeena was sold because I think there are better near-term opportunities.