A reader asked me to write about gold. O.K. Here’s something I have been thinking about after watching Fed Chair Jerome Powell’s testimony before Congress yesterday.

(Click on image to enlarge)

Chart courtesy of TradingEconomics, annotations by Mish

Bipartisan Bickering

Powell’s appearance before Congress Q&A was dripping with partisanship.

Republicans phrased questions to Powell blaming Biden for inflation. Democrats phrased questions to Powell praising Biden for the miraculous job he has done.

Will anyone do anything about anything?

Attempts to Drag the Fed Into Climate Change

One representative asked Powell to comment on money for Ukraine and he would not answer.

Another representative tried a different tact. She asked Powell if climate change was a risk.

Powell responded absolutely. The follow-up question was along the lines of OK what are you going to do about it.

Powell’s answer was essentially “nothing”. Powell pointed out the Fed has a dual mandate, price stability and employment, and that climate change was the job of Congress.

The Fed’s 2.0 Percent Target

The next questioner wanted the Fed to raise its inflation target from 2.0 percent to 2.3 percent or 2.4 percent.

That was a cleverly picked number give year-over-year PCE inflation is 2.4 percent.

In response we have an official denial. Powell said the Fed would not do that.

Question of the Day?

Does anyone out there think the Fed adhere to its 2.0 percent target?

The market does not believe the Fed will achieve price stability. Neither does gold, bitcoin, home prices, or the stock market in general, all making new record high.

How the hell can the Fed address climate change when it has not and will not address price stability?

Hang on @jeromehpowell - Your first legal mandate in the Federal Reserve Act is "stable prices," not your made up 2% number.

This is - as Bernanke said - a very regressive tax on the poor and middle-class. i.e., Not Carlyle Group Partners.@fscdems @FinancialCmte @SenateBanking… https://t.co/HCFWgrXYrf

— Rudy Havenstein, Senior Markets Commentator. (@RudyHavenstein) March 6, 2024

There Is No Plan

There is no plan. https://t.co/xM9SfmwmLA pic.twitter.com/DVRulpnSPE

— Lyn Alden (@LynAldenContact) February 20, 2024

Actually, Here’s the Plan

Don't worry the Fed will stop its inflation targeting at 2.5% then 3.0% then 3.5% then 4.0% It will be so gradual, that no one will even notice.

That's the plan

— Mike "Mish" Shedlock (@MishGEA) March 6, 2024

Gold vs the US Dollar

Charts courtesy of Stockcharts.Com, annotations by Mish

Gold vs the US Dollar Synopsis

Contrary to widespread myth, gold is not a good US dollar hedge.

With the US dollar Index at 90, gold has been at $380, $1000, $1130, and $1900.

And there are times when gold and the dollar rise together.

When Does Gold Do Best?

In general, gold is a poor inflation hedge. The best example is gold fell from$850 to $250 per ounce with inflation every step of the way.

In the mid-to-late 1990s, everyone thought “The Maestro”, Alan Greenspan, had everything under control. In such periods, gold is among the worst assets to hold.

Gold is best viewed not as a hedge against inflation but a hedge against credit stress, stagflation, and faith in central banks.

My lead chart notes some key dates and events.

Related Posts

Let’s check in with former Fed Vice-Chair Alan Blinder and his soft landing thesis.

February 27, 2024: Hoot of the Day “The Fed Has Reached the Soft Landing Runway”

March 5, 2024: ISM Services Respondents Share Concerns Over inflation and Employment

March 4, 2024: The Atlanta Fed on “Pent-Up Exuberance” and Threat of More Inflation

February 29, 2024: A Severe Eurozone Recession and Debt Crisis is On the Way

February 22, 2024: Within 10 Years, Interest and Medicare Will Each Cost $1.6 Trillion a Year

September 7, 2023: Debt to GDP Alarm Bells Ring, Neither Party Will Solve This

“Neither party will fix the deficits. Neither party will do anything about mounting debt. No one will do anything about anything because the political system is totally broken.” Mish

That’s the message of gold. Bitcoin advocates would say Bitcoin as well.

Please click on some of those links and tell me who will address them and how.

And let’s not forget the end of global wage arbitrage, the end of just-in-time manufacturing, huge union wage contracts, massive boomer retirements that will stress the health care system, and Biden’s very inflationary regulations and energy policies.

Is Everything Under Control?

Gold is reacting as if not. And I do not think so either.

While the market cheers a soft landing, I sense upcoming stagflation. And stagflation (or credit stress), is the message from gold.

More By This Author:

Job Openings And Quits Show The Labor Market Has Stabilized, What’s Really Happening?
ISM Services Respondents Share Concerns Over inflation And Employment
ISM Manufacturing Contracts 16th Month, Much Weaker Than Expected