Fed Action To Accelerate Gold’s Rise.

By Tony Hayes CFA of Tony Hayes Blog

Friday, April 24, 2020 9:20 PM EST

U.S. monetary base explodes in the last seven weeks. As yet this increase has been held back as excess reserves. Gold is rising as an early warning of coming money Tsunami about to flow into the real economy.

Once this hits gold should soar so:

BUY GOLD AND GOLD SHARES AND TAKE NO PRISONERS!

The latest release from the Fed shows that the banks have still not pushed out any additional money into the real economy than was the case at the end of February. This is despite the creation of US$ 1.44 trillion in just seven weeks and the elimination of any reserve requirements. The seven-week increase of US$ 1.44 trillion at is 71% greater than the US$ 0.84 trillion that was in existence in August 2008. Given this, it is incredible that the banks are still sitting on any reserves.

Chart by Author from FRED Data

In the last seven weeks, excess reserves held at the Fed have doubled from US$ 1.5 trillion to US$ 3.0 trillion. This has held back any increase in the AWMB, i.e. there has been no movement of the monetary base beyond the banks into the real economy.

What is holding the banks back? The banks are acting like grade-school ink-well monitors holding back the Fed's intentions regarding QE even though the IOER is at only 0.10%.

Closing above US$ 1,730 per oz. the gold price is just beginning to anticipate the flood of money that is to be released into the real economy.

Chart by Author from Data of FRED and London Bullion Market via Kitco.

It is only a matter of a very short time before the flood barriers, which are being held back by the commercial bankers, give way and the new money hits the AWMB. At which point gold should really move considerably higher, initially to US$ 2,000 this quarter and then to over US$3,000 by year-end.

Beyond that one has to wonder how any government is going to work its way out of debt other than by its monetization. The more one thinks about this, the more probable it becomes as it would be the easiest, and perhaps the only, route for governments to take. This points to a return of inflation and gold has historically been a great wealth protector against such an outcome.

In conclusion, the price of gold is ringing the early warning of the Tsunami of money that has been created by central banks around the world. As this money breaches the flood barriers held closed by commercial banks and makes its way into the real economy the Actual Working Monetary Base (AWMB) should rise sharply and with it the price of gold in all currencies. It seems obvious that the Fed’s action provides in advance a phenomenal opportunity to: BUY GOLD AND GOLD SHARES AND TAKE NO PRISONERS!

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not ...

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