Gold's Highest Price EVAH.

CLUB/EDGE client post.

The debt load of the U.S. is growing at ~ $1 trillion every 100 days. Some bet that's why gold is rising: debt debasement.

Some bet that as inflation cools, Fed will cut, and gold should like that: falling rates.

So we will get to test the above thesis with economic data out this week. Gold prices should come back in if economic data, particularly on employment, comes in hot.

We shall see. In the meantime, equities continue to run higher without seeming to care about gold's potential debasement warning.

Craig, MacroAdvisor EDGE manager, reminds: Before payrolls on Friday, we have some potentially market-moving news Tues with ISM Services as well as Powell's Congressional testimony Wed and Thurs.

Important data point tomorrow coming from the ISM Services metric, particularly the prices paid indicator which had a very sizable increase in the month of January  (from 56.7 to 64), one of the largest monthly increases in a decade.

Many folks have viewed the pickup in prices/inflation in January as something that was more seasonal and weather related than structural so if we get another robust prices paid figure for February, it will be harder to justify this narrative and will add credence to the view that inflation has already bottomed in 4Q23 and continues to show re-acceleration in 2024.

In light of that, it would continue to be very difficult for the Fed to justify the rate cutting regime it wants to get started this year, something that continues to be pushed back in time with recent data but needs to ultimately be eliminated in order to firmly bring inflation back down to 2%.

The longer the Fed goes before it pushes back against this narrative, the more risk markets will continue to rally, loosening financial conditions further, re-igniting inflation expectations and actual inflation through the wealth channel, making it even more difficult to return to 2%. A hot prices paid print tomorrow would give Powell more room later this week to push back against the market if he wanted to.

USD Has Likely Peaked, Redux

My bet Nov 10th for clients:

"the bull case for emerging market equities and gold with select commodities is when Fed starts cutting rates against a backdrop of declining dollar."

With that, I got a lot of pushback early Nov of last year when I presented my thesis the "USD has likely peaked" - And why it was "so bullish it's bearish".

Fast forward, equities have 'mooned' as expected, and “all of a sudden”, gold/precious metals are breaking higher.

Given gold's advance of late, it wouldn't surprise me if gold is warning that this inflation problem is a fiscal problem.

As Geoffrey, our MacroAdvisor EDGE contributor, has lamented often:

You stop avoiding the elephant in the room. Trying to look for the elephant under the carpet (QT), behind the cupboard (QE), under the sofa (QRA), while it's right in front of you. You rescind this stupid "unlimited spending": put your budget & trade in order. NO OTHER SOLUTIONS

So what does this have to do with my focus on dollar peaking?

As I wrote to CLUB/EDGE clients in early November 2023:

USD Weakness Threatens Bond Bounce

Falling DXY and softer yields may have served as a strong tailwind for equities, but I see it more as a headwind to a durable bond bounce.

And here's why: As rates fall (especially with Fed rate cuts surging), demand for USD and UST will fall together and this will be negative for risk assets.

This is not your credit event/crisis that forces USD crowded longs. We have a whole new regime of quasi-fiscal deficits under the mechanism of Fiscal Dominance now.

Since market can’t price THAT in, given all the tricks Yellen is pulling out and Fed is forced to defend, foreign money is going back home/abroad.

And this is the biggest tailwind for gold.

Because we have crossed the Rubicon where Treasury will print and print and print, not deterred by higher rates or falling US dollar.

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Last week @JasonEBurack and I discussed what's next for equities, bonds, oil, USD & gold.