Gold Gann Angle Update

The gold to long bond relationship is about to allow gold price to move higher.


US Economic data has sunk, the economy has been slammed with higher oil prices, higher inflation, supply chain issues and corporate profit troubles. The rise of growth fears over high inflation fears will play on the US 10 year interest rate mostly likely keeping rates under 3% if not much lower. Lower 10 yr interest rate tend to mean higher gold prices (chart 1). Peak inflation fear may have passed.

The US dollar has also enjoyed a strong rally on much higher US inflation reports relative to the European Union, however this is changing as inflation in Germany is hitting all time highs and the ECB may have to hike rates faster and further than the FED, likely to send the EURUSD much higher. Also news items like COVID in China and war in the Ukraine are coming to an end, peak fear has passed, which gives more support for a higher EURUSD. Good for gold and silver.



Chart 1: The 10 year interest rate relationship to gold price in US dollars.

Chart 2: Gold price is following the Gann Angles draw from zero (red lines), the blue lines offer a time zone as to the acceleration of price higher. 

Chart 3: Forest for the trees standard Gann Angles.

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Powell has a debt problem

The last time the US entertained debt this high (relative to GDP) was post World War 2.



The prior US high debt years were between 1936 and 1954, back then the public understood why the high debt existed (WW2) and why the public had to suffer high inflation to allow deflation of the debt to a manageable level. This question was not as political as it is today.   


Current US debt levels are the result of 'end of empire' spending, simply spending on steroids beyond one means. The FED needs inflation for the same reason as the post WW2 period to deflate away the debt.


The current political talk of 'fight inflation' will be short lived and the FED will be forced to accept higher inflation levels over the 2% (say between 4% to 6%). This change will be forced on them as the FEDs inflation fighting policies are currently breaking the credit and treasury markets (see via credit spreads and the Move Index).


The chart below shows a orange band (chart 3), this band represents a interest max of 3.25%. The US 10 year interest rate (black line) must not pass above if the FED wishes to avoid a crash in US debt and a run on the US dollar. After world war 2 the FED ensured this did not happen, back then they implemented yield curve control over the interest rate markets, even while high inflation (green line) periods persisted.    


The FED will be forced into some sort of yield curve control 2022+ and this will involve money printing and send the FED balance sheet to all time highs. 
 

Of course if interest rates can not be contained under 3.25% then the FED is going to have find a new tool to avoid a world depression.

ha!



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Powell doing a Volker to crush inflation, yeah right!

In 1979, Volker was equal to Goliath as he had a good chance of crushing inflation, today the debt Goliath is massive.


In the video below David Rosenberg explains the FED is on a 'Volker' mission to crush inflation no matter what happens to risk on assets like stocks.

David Rosenberg thinking is challenged when ask about the current US debt levels, as Paul Volker did say that he could not have crushed inflation with the debt levels of today.  David Rosenberg simply says the FED is going to hike no matter what, until something very serious breaks.

The question remains will something break in the markets after: 1%, 1.5% or 2% hikes. No one knows. But as the US debt to GDP% is over 120% this suggest sooner rather than latter has the best odds. This blogs says near 2022 Q3.

Will Powell even be able to start Quantitative tightening (QT or reducing the FED balance sheet)? Or is the next major FED move to Pivot [like 2018] back to the extremely dovish monetary side.

Volker rate hike conditions 1979 to 1982

Powell rate hike conditions 2022+

We are at the pain line now. Pension funds are fearful of valuation crash already. 

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US debt is being rejected by big money

The warning bells of a US sovereign debt crisis are getting louder.
When the bells ring you know something is going to get burned down.

Dear reader the market is ringing the bells, can you hear them. Big money is doing something different this time.

Take a look.

This why, too much supply of US debt, while inflation, oil and the US dollar are hot.

In 2022 the FED wants to sell into a rising interest rate market a $1 trillion of US debt off its own balance sheet (QT), get this, while the US Govt is planning to issue new debt of $800 billion and also roll over $900 billion of older debt in 2022 (chart below).

This is a supply of $2.7 trillion in US debt to sell while the US dollar is making new all time yearly highs.

In the past the Japanese and the Europeans have been large buyers of US Debt, today the Japanese and the Europeans can not buy the debt while their currencies plunge lower, so who is going to be the buyer of this debt. US corporations and banks are already loaded up to the gills. The FED will be buyer of last resort and their balance sheet will expand the release valve will be a lower US dollar (DXY). 

Of course what if Japan starts selling its $1.3 trillion in US assets to support its currency? They will need to sell something as they must import 100% of their oil. This does not make US debt supply crisis any easier. Of course other countries may also do the same while the US dollar screams higher.

investors just do not like US 'Zombie' debt, even when they are being scared out of stocks.

Guess what in this movie gold kills zombie debt.





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