Negative Rates Next? Gold Surges As US Dollar Tanks, Fed Remains Silent (Bizarro World)

The Federal Reserve Open Market Committee (FOMC) decided to do nothing, except say that ZIRP (zero interest rate policies) are going to continue for a long time. And that MORE fiscal stimulus is needed. As long as Mayors and Governors continue their economic lockdown policies, more monetary and fiscal stimulus will be needed.

Where does The Fed go from here (given that Covid-19 seems to be growing still)? The implied Fed policy rate looks to be negative by 2021.

Gold is surging as investors figure out that our fiat currency cannot support the reckless spending in Washington DC.

Let’s see what Fed Chair Jay Powell (aka, Thurston Powell III) comes up with. Hint: Fed buying stocks and going to negative rates.

US Dollar Forms Death Cross, Inverted From Gold Spot (Bond Bulls Still Stampeding)

The U.S. dollar’s decline may be just getting started, according to a widely-watched technical indicator. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 of its major peers, formed a death cross pattern on Friday, with its 50-day moving average dropping below its 200-day one. The gauge has tumbled more than 3% this month amid concern over the spread of the coronavirus in the U.S. and wrangling between lawmakers over the next stimulus package.

But against gold …

(Bloomberg) — Bond investors keep getting bombarded with fresh reasons to stay bullish after another record-breaking week in Treasuries.

As the five-year yield plumbs near all-time lows, the 10-year benchmark is again testing levels notched in the depths of the pandemic despair. Leveraged-funds keep pulling back their bearish bets to the lowest since early 2018.

With U.S-China tensions raging again, Wall Street is telling clients to stay constructive and investors are finding it tough to wager against securities they deem the most overvalued in decades.

And Fed policies are likely to keep Treasuries yielding less than the inflation rate.

Why does this remind me of Kevin’s Famous Chili?

Fears Mount About Inflation Returning With a Vengeance (But No Signs Of Inflation Yet)

Given the reaction of The Federal Reserve to the Covid-19 virus, it is understandable for investors to freak-out about possible Weimar Republic / Venezuela-like hyperinflation.

(Bloomberg) — Even a calamity of disease, death and economic destruction afflicting the world all at once isn’t enough to suppress the notion in some quarters that inflation could return with a vengeance.

The coronavirus crisis has killed hundreds of thousands, incapacitated millions and affected the livelihoods of billions — prompting policy makers to fear a deflation spiral reminiscent of the Great Depression. But economists including former Bank of England official Charles Goodhart, and investors such as BNP Paribas Asset Management, are asking if a different phenomenon lurks in the wreckage of global growth.

Muted Price Growth

IMF predictions for inflation rate at end of 2021

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Yes, inflation rates are muted in the short-run, but the surge in government spending and The Fed balance sheet is scaring some people about “inevitable” hyperinflation.

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And the surge in M2 Money Supply YoY is leading some to panic.

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But like the Titanic that sank after striking an iceberg in calm seas, there are calm seas on the inflation front. The EUR Inflation Swap Forward 5Y5Y is less than 1%.

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The USD Inflation Swap Forward 5Y5Y rate is 1.7944%.

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But USD Swaption volatility remains calm after a jolt upwards in March.

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And the US Treasury Inflation Indexed curve is negative beyond 3 years.

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So, the data is showing calm inflation seas, not gut-wrenching Venezuelan-like inflation.

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Gold Contango? Gold Futures Price SOARS Above Spot Price

The COVID-19 virus sweeping the globe is having dramatic impact on asset and commodity prices. Particularly gold.

Contango, also sometimes called forwardation, is a situation where the futures price (or forward price) of a commodity is higher than the spot price of the contract today. Such is the case for gold futures where the futures price for gold exceeds the spot price.

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This will not be the Last Contango for Gold.

And good luck finding physical gold in the form of gold bars. Gold coins, on the other hand, are available.

RIP, Honor Blackman.

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Liquidity Trap! 3M Treasury Yield At -0.025%

A liquidity trap is a situation in which, “after the rate of interest has fallen to a certain level, liquidity preference may become virtually absolute in the sense that almost everyone prefers holding cash rather than holding a debt which yields so low a rate of interest.”

Well, Buckaroos, we are in a liquidity trap with the 3 month Treasury yield at -0.025%.

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A closer look at the T-bill market today.

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So here we sit in a classic liquidity trap!

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Fed Chair Jerome Powell in a liquidity trap!

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Mega thanks to Jesse at Jesse’s Cafe Americain for the jail jpg.

Frankly, I like The Byrds version of Buckaroobetter with the great Clarence White on the Fender Telecaster B-Bender guitar.

The Night Before: US Equities Down 1%, Oil Down 2%, Gold Up 1% (Coronavirus Fear Again)

It is the night before Monday opening.

And it is ugly.

The Dow Jones mini is down 346 points as of 7:30pm EST on Sunday evening.

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Bond market futures are up, meaning yields are down.

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Oil futures are down 2.55%.  And GOLD is up 1%!

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Yes, it is the coronavirus impact global supply chains.

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Or it was Tyson Fury licking Deontay Wilder’s neck in their rematch fight on Saturday night.

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Dollar Bop! US Dollar Index Approaches 100 (Golden Cross) As Coronavirus Fears Mount (Gold Rising Too!)

The US is experiencing the Dollar Bop!

The Dollar Index looks poised for a run at the 100 level for the first time since 2017 as investors seek out the safety of American assets amid the ongoing coronavirus spread.

The U.S. currency has benefited this week from a narrowing in haven options, with the yen slumping to a nine-month low on fears the outbreak could push an already struggling Japanese economy into recession. In contrast, U.S. stocks closed at a fresh record Wednesday, Treasuries are seeing continued demand and a bullish golden cross pattern is set to form in the dollar gauge, suggesting further upside is possible.

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The golden cross is a candlestick pattern that is a bullish signal in which a relatively short-term moving average crosses above a long-term moving average. The golden cross is a bullish breakout pattern formed from a crossover involving a security’s short-term moving average (such as the 15-day moving average) breaking above its long-term moving average (such as the 50-day moving average) or resistance level.

The US dollar index follows President Trump’s approval rating. Or is it that Trump’s approval rating mirrors the US economy?

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Gold is also flashing a technical buy!

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Gold surpassed $1,600 an ounce this week and its climb may not be over yet. The GTI Vera Convergence Divergence Indicator, a technical measure which detects trend exhaustion, triggered a buy signal on Tuesday, its first since the end of January. Growing concern over the potential impact of the coronavirus on the global economy is boosting haven demand for the metal, which is now closing in on a seven-year high.

Gold, US Dollar Inverse Correlation Weakens Due To Coronavirus Fears

The coronavirus is ravishing China … and may soon ravish the USA as well. As a result, the inverse correlation between gold and the US dollar is weakening and resembles the weakening that occurred during the financial crisis.

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Yes, gold is rising again in the face of coronavirus fears ravaging the Chinese economy.

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The CFTC’s Gold Non-commercial long contracts/futures remains near an all-time high.

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Here is the gold/US dollar volatility surface.

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