From Teeka Tiwari, editor, The Palm Beach Letter: It was the most anticipated Fed meeting in years…
In December 2015, the Federal Reserve raised rates. It was the first rate raise in almost a decade. The Fed vowed to hike four more times over the following year.
Gold shares crashed 20% lower on the news. Why was gold going down?
When rates rise, it makes gold less appealing to investors. That’s because gold pays no interest. You give up potential income when you hold gold. In a zero-interest-rate market, that’s no big deal. But if rates go up, traders fear that will lure people out of gold.
That’s why they sell gold and gold stocks when fears of a rate hike set in.
Here’s the thing, though… The Federal Reserve never raised rates. I don’t think it ever intended to. In fact, I think it was a well-choreographed scam…
As investors were dumping their gold positions in December 2015, guess who jumped in as the biggest buyers?
They scooped up 144 tonnes of physical gold. They even bought shares. As share prices were getting flattened, the Swiss National Bank bought $1 billion worth.
Since then, gold has risen almost 30%… and the average gold miner is up 100%.
If it worked once, why not try it again…
Phase Two of the scam went into effect on May 17, 2016. That’s when three Fed officials started “jawboning” that the Fed should raise rates at the June meeting.
Guess what happened? Gold prices dropped 7% and gold-mining shares dropped 17.5%.
Who were the biggest buyers on that weakness?
You guessed it… Central banks.
Gold rose 14.5% off the May lows. Gold stocks did even better. On average, they ran up 60% from the lows. Frightening gold traders with tales of higher rates has been an amazing moneymaker for the central bankers.
Why Are the Central Banks Doing This?
In a misguided effort to boost trade, central banks are devaluing their national currencies.
At some point, that is going to kick off inflation. The dollars, pounds, and euros in our pockets today will be far less valuable in the future.
It’s simple supply and demand. If you flood the world with stadium-sized stacks of paper money, its value will go down. Gold is the central bankers’ hedge against its own policies.
But physical gold is scarce right now. Annual demand is outstripping supply by 1,000 tonnes. That’s why the bankers are actively manipulating investor sentiment. They want to pry loose as much gold and gold-mining shares as they can.
Why do you think central banks own 20% of all gold ever mined? It’s a hard backstop against fragile paper money.
This part of their playbook… and spooking the market into selling its gold and mining shares… is working like a charm. Central bankers don’t have to do anything except talk, and people line up to give them their gold. It’s quite a racket.
That brings us to today…
Here we are in October, and the Fed speakers are out once again saying rates must rise in December. The outcome is predictable. Gold prices have plunged. They were down $41.60 on October 4.
We’re also seeing panic selling in mining companies. Those shares are down 25% on average. People are once again selling gold and gold-mining shares.
Investors seem committed to trading a rising hard asset (gold) for a declining paper one (dollars). That’s dumb. Don’t do it. Rates are not going to normalize anytime soon. So don’t sweat that.
If you’ve position-sized properly, you can safely ignore market volatility. And so long as your stop loss levels remain intact, hold on to your gold and gold-mining shares.
You want to use this pullback the same way the central bankers are using it: as buyers, not sellers. Don’t fall prey to their scam.
Current Palm Beach Letter subscribers can review my favorite safe way to ride gold 237% higher right here. Others can gain access to this recommendation—as well as another explosive alternative asset benefitting from the same central bank shenanigans—right here.