November 1st Week In Review

With a bit more monetary booze released to the inmates (compliments of the Federal Reserve Bank), the financial orgy continued this past week. This week it was total “risk on.”

As you can see from the major sectors of the financial markets, there was no need to switch from stocks to bonds because there was enough “juice” to get all sectors “high.” Stocks, bonds, precious metals, and commodities, all imbibed on the good juice from the Fed this week as our “savior” came through again to make sure Wall Street and the elite don’t suffer. 

But as I will discuss in my Metals Investor Forum talk on November 15, the seeds of destruction are built into the Fed’s solution. How soon the dollar system will be replaced with something else it is difficult to say. But with the need generally to drop rates by 5% to turn a recession around and with the Fed Funds rate now at 2.18%, that implies negative US dollar rates will be headed our way very soon. And if that happens, as Alasdair Macleod pointed out on my radio show, it will be all over for the dollar. Why? It’s because, all commodities in the world are priced in dollars. All commodities have a positive interest rate or more accurately described as a time preference rate. If dollar rates head negative, there is no question that there will be a mass exodus from the dollar. Gold, for example, has an interest rate of 1.5% to 2.0%. Why would you ever hold money in a bank account if you can own gold that gives you 1.5% to 2.0% p.a.? By the way, you can actually lease your physical gold now through Monetary Metals which I am personally in the process of doing on a very small scale. If you are interested, go here to check it out.  I should also mention that another reason you would not want to own dollars in a negative interest rate scenario is because dollars lose massive amounts of purchasing power over the longer run. More than 93% of the dollar’s value has been lost since the Fed was created in 1913, compared to gold which buys as much today as it did in 1913.

These are most certainly interesting times and I continue to believe we are in the early days of a massive bull market not unrelated to the monetary pathology I just alluded to. On your left is my monthly average gold price chart through the end of October. After a multi-year basing period, gold shot dramatically higher over the past three months. It quite naturally took a breather when it averaged $1,494.60 compared to $1,511.31 in September. Given the current interest rate scenario, I don’t see any reason to expect anything more than a temporary breather for gold.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.