On the heels of continued propaganda from the Fed, central banks are now on the cusp of losing control.

Here is what Peter Boockvar wrote today as the world awaits the next round of monetary madness:  July CPI was flat headline as expected and rose .1% core which was one tenth less than expected. On a y/o/y basis, prices were up .8% headline and 2.2% core, both one tenth less than expected. That core rate though is the 9th month in a row above 2% but nothing to see here because the Fed says they only look at PCE. Rent and medical care remain major cost issues. Rent of Primary Residence rose another .3% m/o/m and up 3.8% y/o/y…


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Owners’ Equivalent Rent was also up by .3% m/o/m and 3.3% y/o/y. OER is a faux measure of rent inflation and if actual rents paid were used and also made up 24% of CPI, inflation would print higher. Medical care costs increased by .5% m/o/m and 4% y/o/y. Also, nothing to see here because the Fed looks at the medical care component of PCE which is price fixed because it measures medicare/Medicaid pricing rather than actual out of pocket costs that CPI measures. Keeping a lid on inflation was no change in prices m/o/m for clothing and a 1% decline in used car prices which have fallen for a 3rd straight month (which will start to impact new car sales soon). New car prices rose .2%. Energy prices fell 1.6% m/o/m and 11% y/o/y. Food prices were flat m/o/m and up .3% y/o/y.

Bottom line, because the Fed looks at PCE instead of CPI, they can tell themselves that they haven’t met their inflation objectives and thus rationalize a fed funds rate of just .375%. For the rest of us who look at CPI, they have for 9 straight months. As today’s data was about in line, treasuries are about unchanged. I continue to believe we’ve seen the low in global interest rates.

King World News - WARNING: Central Banks Are Now On The Cusp Of Losing ControlGold – Central Banks Are Now On The Cusp Of Losing Control
With respect to my last comment on rates, it begs the question as to what happens to gold if I’m right. The bear case over the past few years on gold has been twofold, the US economy is performing better than everyone else and thus the Fed will embark on a multi year rate hike cycle. Both of these beliefs have been proven to be false. As to my belief that interest rates globally have bottomed and may be heading higher anyway, it stems from the idea that central bankers are on the cusp of losing control of the one market that have so deftly dominated over the years. This loss is gold’s best friend if we view gold as the anti central bank currency, the anti fiat currency.

Japan is where we are potentially, and I emphasize potentially, seeing the first signs that a central bank is at the end of its easing road. On NIRP, the backlash has been intense, particularly from the banking system so we can assume the BoJ won’t be easing deeper into negative territory again. On QE purchases of JGB’s, major logistical limits are being reached where the BoJ is basically breaking the market. This has major implications for European and US sovereign bonds due to the high correlation seen recently. Imagine also for a minute that commodity prices are actually bottoming which I firmly believe and combine this with services inflation that is running at a 3% annual rate and inflation will be back. That won’t sit well in the context of the epic bond bubble we find ourselves in.

King World News - Gold Price Set To Skyrocket To $2,300 In Only 22 Months!The Bottom Line
Bottom line, gold will be the main beneficiary in the loss of confidence in central banks and the rise in interest rates as a result will also coincide with the rise in gold.

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