On Wednesday, Congress finally agreed on a government stimulus/bailout plan to battle the economic impacts of coronavirus to the tune of over $2 trillion. Meanwhile, the Federal Reserve has committed to monetize the debt with QE to infinity. Practically speaking, we’re talking about trillions of dollars being injected into the US economy – all of those dollars created out of thin air.
So, what does all of the money creation and government spending mean for gold?
On Wednesday, March, 18, Peter Schiff did a live episode of his podcast and took questions for over four hours.
In a nutshell, Peter made the case that the real crash is here. He covered a wide range of topics relating to the ongoing and ever-evolving coronavirus crisis.
It appears we’ve pretty much reached complete panic mode.
The longest bull market in history came to an abrupt end on Wednesday. Wall Street followed up with another massive sell-off on Thursday. The S&P 500 had its worst day since Black Monday in 1987. Even gold was down. Meanwhile, the Fed tried to stem the tide, announcing a new round of quantitative easing. But the tide wasn’t stemmed. In this episode of the Friday Gold Wrap podcast, host Mike Maharrey gives an overview of the week’s events and talks about the elephant in the room.
The US is heading for economic lockdown as the impact of the coronavirus grows. To cope with the crisis, President Trump has promised fiscal stimulus. The actual plan remains unclear, but the Trump administration has floated a reduction in payroll taxes, along with bailouts and loan guarantees for struggling industries. While the details are murky, one thing is certain — it will cost billions of dollars.
Meanwhile, the US government is already living far above its means. Uncle Sam recorded another massive budget deficit of $235 billion last month, according to the latest Treasury Department report.
Yesterday was “Reversal Tuesday.” Stocks rallied on the promise of government stimulus. The dollar and the bond market also turned around. In his podcast, Peter Schiff said the bond market was the one to watch because it’s possible that the promise of more stimulus could have finally pricked the overblown bond bubble.
President Trump floated the idea of a payroll tax cut. There is also talk of bailouts for oil companies and other industries hit hard by the coronavirus, such as airlines and cruise companies.
Peter Schiff recently appeared on Fox Business Claman Countdown along with Stephen Guilfoyle and Luke Rahbari to talk about gold, bonds and coronavirus.
Stocks have sold off two straight days as investors pile into safe-havens due to coronavirus fears. Yields on both 10-year and 30-year Treasuries fell to record lows this week. Gold has also gotten a healthy boost over the last few days. The yellow metal pushed to $1,690 per ounce on Monday, but gave up some of its gains on Tuesday in the midst of profit-taking.
Stock markets tanked on Monday. The Dow Jones was down over 1031 points. It was the biggest drop in two years for the Dow. The Nasdaq shed 355 points. The S&P500 was down 111.
As stocks dropped, the bond market was red-hot. Prices soared and yields dipped to record lows. Bonds are considered a safe-haven, but in his latest podcast, Peter said US Treasuries aren’t a safe-space. When it’s all said and done, the only safe-haven left standing will be gold.
Last week, the Federal Reserve cut interest rates for the third time. And the Fed isn’t alone. A majority of the world’s central banks have slashed rates this year. A World Gold Council report says this new regime of easy monetary policy will likely push bond yields down even lower, making gold a more attractive portfolio diversifier.
As negative yielding debt increases alongside stock-to-yield valuations to all-time highs, gold may become an attractive and more effective diversifier than bonds, justifying a higher portfolio allocation than historical performance suggests.”
In a move “Bond King” Jeffrey Gundlach said could be a prelude to the next round of quantitative easing, the New York Fed conducted a repurchase operation involving about $53 billion in debt instruments on Tuesday. The move to designed to unplug the financial system’s “plumbing” with an injection of cash was the first such move since the financial crisis a decade ago.
The purchases involved about $40.8 billion of Treasurys, $11.7 billion in mortgage-backed securities and $600 million in agency debt, according to a CNBC report. The move was prompted by the recent surge in interest rates that drove the overnight repo rate Monday to as high as 8.5%.
The New York Fed was expected to repeat the operation on Wednesday.
Former Reagan administration OMB Director David Stockman has called this the “mother of all bond bubbles.” Has that bubble popped? That remains to be seen, but bonds got hammered last week.
Bonds have pretty much moved in tandem with gold over the last several weeks as perceived safe-haven trades. Peter Schiff talked about it in his latest podcast, saying he thinks the bond market is eventually going to decouple from gold.