This only happened in the gold market two other times, plus look at these famous magazine covers.

This Only Happened In The Gold Market 2 Other Times
October 10 (King World News) – 
Fred Hickey:  … the western (highly leveraged traders) that have been dumping gold are now net short it (selling gold they don’t have). That’s only happened 2 other times – late-2015 & again in 2018 – both times before gold went off on major rallies from important gold bottoms…

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Peter Boockvar:  As we prepare for earnings, I’ll repeat here what I said about banks a few weeks ago. Yes, focus on loan loss reserves, loan growth, etc… but I also want to hear about what they are saying about the loss of deposits to higher yielding money market funds (reflected in the continued massive daily use of the Fed’s reverse repo facility) and other higher yielding options. When are we going to start to see higher deposit rates to slow this trend down? I ask this because bank reserves are falling rapidly which both limits the banks ability to lend and means that there is little chance the Fed gets away with as much QT as they hope for. Remember it was the drop in reserves that reached a tipping point that led to the spike in repo rates in late 2019 that drove the Fed to do more QE. 

Also of huge importance, and part of the loss of deposits, is what is going on with their holdings of US Treasuries and agency MBS. They are shrinking as a result and at the same time the Fed is doing QT.

So the US Treasury market is losing these two buyers. They are also losing foreign buyers (ex hedge funds parked in the Cayman Islands), especially those who are trying to slow the pace or reverse their currency devaluation. All this at the same time US debts are exploding higher and the budget deficit is about to as tax receipts are at major risk if economic growth continues to slow. As I said on the day the BoE intervened to bailout the pension fund industry and their use of liability driven investments, that bond market hissy fit could be coming to a US theater near you. 

Aware of the risks but showing no interest in acting like the BoE was Governor Waller as expressed in his speech last week. He said, “In considering what might happen to alter my expectations about the path of policy, I’ve read some speculation recently that financial stability concerns could possibly lead the FOMC to slow rate increases or halt them earlier than expected. Let me be clear that this is not something I’m considering or believe to be a very likely development. I am a little confused about this speculation. While there has been some increased volatility and liquidity strains in financial markets lately, overall, I believe markets are operating effectively…Functioning in the Treasury, equity and commodity markets remains orderly.” 

If there were to be market trouble, he expressed his confidence in the Fed’s swap lines and standing repo facility and “Along with the improved regulatory framework, I believe we have tools in place to address any financial stability concerns and should not be looking to monetary policy for this purpose. The focus of monetary policy needs to be fighting inflation.”

The dangerous assumption that he is making is that somehow the US Treasury will ultimately find buyers to take the place of the Fed, foreigners and the banks where the first two are outright selling and the latter continues to buy less as already stated.

As I went thru a bunch of weekend reading, I saw the front page of one of my recent issues of Bloomberg BusinessWeek. This was the cover:

It reminded me of this cover from The Economist in December 2016 right before the US dollar lost 14% of its value over the following 14 months. 

Which also gave me flashbacks to this cover in April 2019 not long before you know what:

So let’s just say that the new magazine cover is the precursor to notable dollar weakness after an incredible run, what are some of the catalysts that can result in it? I will list a few with the first one being something not many are focused on and that is the direction from here of the US budget deficit as a % of GDP. See the chart below the longer term relationship.

Secondly of course is when we near the end of Fed tightening which we’re getting closer to. Lastly, it could be an accident in the US Treasury market where foreign selling picks up steam at the same time it has lost the other buyers I’ve mentioned. 

I just look at the impressive performances of the Mexican Peso and the Brazilian Real over the past two years with the help of their aggressive central banks in raising interest rates (the Brazilian central bank started hiking in March 2021 and the Mexican central bank in June 2021) and higher commodity prices to tell me that the US dollar strength has mostly been a plain old interest rate differential thing, helped by the Fed’s also aggressive campaign in raising rates.

Billionaire Pierre Lassonde Calls Major Bottom In The Gold Market
***To listen to
billionaire Pierre Lassonde discuss the major bottom in the gold market as well as where he believes the price of gold is headed CLICK HERE OR ON THE IMAGE BELOW.

***To listen to Alasdair Macleod discuss the unfolding banking crisis and how it will impact major markets including gold and silver CLICK HERE OR ON THE IMAGE BELOW.

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