We want to share a few charts today, first to illustrate this powerful gold bull market, and then to show some of the financial machinations going on behind the scenes that we believe will drive gold much higher.
By some interpretations, the gold bull market was confirmed, if not born, in August 2018 with the low of $1,167.
Before the year was over, gold moved decisively above its 200-day moving average. It has stayed above that trend line ever since, except for a quick drop in March. That drop appears to have been a Wall Street phenomenon, with traders and hedge funds faced with massive margin calls in the COVID-19 lockdown stock market collapse. They turned to gold for the liquidity they needed in the moment, but it was a brief affair and they wasted no time reestablishing their gold holdings.
That liquidity is a primary virtue of gold. It is the world’s most liquid commodity, even in a crisis.
The next chart is a dramatic portrayal of the Federal Reserve in action. Covering the same period as the gold bull market beginning in August 2018, it shows both the explosive growth of the money supply, MZM (in red) and Federal Reserve assets (in black).
Both are “hockey stick” charts, sudden turning straight up. MZM, a broad measure of money supply, has grown about 35 percent over the period, to about $21 trillion.
Fed assets, represents financial instruments, corporate and government bonds, stocks, funds, mortgage securities that the Federal Reserve has purchased out of money it created out of thin air, or more accurately by making a computer entry in an account somewhere.
Fed assets have increased about 66 percent over the period to $7.1 trillion. That outpaces gold’s gain of 52 percent from trough to peak.
The growth of both of these measures should leave even old and grizzled market veterans gasping for air. The straight-up climb of both is relentless and unprecedented, even as the driving force behind a bull market.
The Federal Reserve has taken this country’s economy into very dangerous territory. It is not enough for us to say that we don’t believe the Federal Reserve has any idea what it has done with these policies. It is better that you should know that the Fed itself admits it doesn’t know what it has done.
We will simply leave you with the words of Fed chairman Jerome Powell just a few days ago:
“We’re not even thinking about thinking about the consequences of our actions.”
We think these charts makes that evident.