What Could Be More Bullish For Gold?

The carnage in the U.S. Treasury market is a sight to behold! That so-called safe haven place to hide your money has been an absolute disaster. As measured by TLT, long-dated U.S. Treasuries are down by 37.16% so far this year. Outside of the fiat monetary system is the centuries old failsafe asset for preserving wealth—that of course is gold. Against most currencies, gold has held its own or actually gained value in 2022. In dollar terms, gold is down 9.5% this year. Not great if you think in dollars, but a whole lot better I’d say than long-dated U.S. Treasuries.

Which brings me to a conversation I had with my cotton-picking Texas cotton farmer friend of mine, Tommy Thiltgen, who suggested that with gold holding its own during a time when there is a growing shortage of dollars with which to repay the margin clerk and with the dollar extremely “strong” relative to other intrinsically worthless currencies, this may be the last chance in a lifetime to buy gold before it once again replaces fiat money.  

We may have seen the start of a significant move in gold today. Gold took off along with stocks like a bat out of that proverbial “hot place” after a Fed whisperer note by Nick Timiraos in the Friday morning Wall Street Journal to the effect that this may be a “critical staging ground” for potential stepdown to 50 bps in December.” The mere hint that the Fed might actually not be hiking 75 basis points every month from here to kingdom come was enough to trigger the massive surge in gold in the Kitco chart on your left.

It’s very possible that investors are simply once again responding like Pavlov’s dog to this latest ringing of the bell. On the other hand, as Zero Hedge noted, “. . . the otherwise hawkish Mary Daly . . . also suggested that the Fed may be moving too fast while bringing up the sensitive topic of broken markets, and the reason for this particular dovish reversal and jawboning is becoming increasingly clear: the same reason we have been warning for the past year that the Fed’s tightening campaign, now in its terminal stages, will inevitably break something which will manifest itself first in a worldwide dollar shortage and short-squeeze crisis, as global USD funding markets grind to a halt.

Of course, this is good news, because as BofA Chief Investment Strategist Michael Hartnett (whose latest weekly note we will dissect shortly) is fond of saying, ‘Markets stop panicking when central banks start panicking.’

So, in what may be the best news to shellshocked bulls after the worst September and worst Q3 in generations, in a harrowing year for markets, central banks are starting to panic more with every passing day. First it was the BOJ with its September intervention, then the BOE with its bailout of pensions, then the BOJ again with its second consecutive injection of billions of US dollars into the market—consider the paradox: there is such a massive USD short squeeze out there that it was the Bank of Japan that was compelled to inject approximately $40 billion in USD today (in only its second intervention this century) to prop up the yen since the Fed won’t lift a finger . . . and now, for the third week in a row, it’s Switzerland’s turn.

Recall that one month ago, after the (first) panicked pivot by the BOE, when global markets were in freefall, we said that markets desperately needed some words of encouragement from the Fed, or failing that—and with the dollar soaring to new all-time highs every day—the Fed had to make some pre-emptive announcement on USD Fx swap lines, if only to reassure global markets that amid this historic, US dollar short squeeze, at least someone can and will print as many as are needed to avoid systemic collapse. So fast forward two weeks to October 5, when there still hasn’t been any formal announcement from the Fed, but ever so quietly the Fed shuttled $3.1 billion to the Swiss National Bank to cover an emergency dollar shortfall, as we first reported a few days ago. And then, just when people thought that things are set to normalize with Credit Suisse stock surging, it doubled it again, and in the latest week, the Fed almost doubled the amount of US liquidity it sent to Switzerland from $6.3 billion to $11.1 billion.” It looks to your editor as if the global panic in bankrupt fiat monetary system is just now getting underway. What could be more bullish 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.