It’s very important for gold, bond, and stock market investors to stay focused on the main fundamental price drivers and ignore what may feel exciting but is largely irrelevant to price discovery. Citizen demand from China/India and US central bank policy are the main price drivers for gold.

From 1960 to 1980, US recessions were generally inflationary, and the Fed raised rates during that period. Since then, recessions have carried a deflationary theme, and interest rates have fallen.

In 2013 I began suggesting that the Fed was going to end its deflationary QE and rate cutting programs. A new era of rate hikes and quantitative tightening would begin, resulting once again in inflationary US recessions. 

I’ll dare to suggest that America is now poised to experience its first inflationary recession in almost three decades. Importantly, this is happening while Chinese and Indian citizen demand for gold is beginning to rise after a multi-year lull. 

Ben Bernanke created enormous Main Street deflation with his QE and rate cutting policy. He incentivized corporations to engage in massive stock buyback programs while the Fed itself used printed money to buy government bonds. Small bank regulation made it unprofitable to make loans to small business. Main Street deflated, the labor force participation rate collapsed, and financial assets soared.

Double-click to enlarge this important labor force chart. 

I’ve described Janet Yellen as the “Great Transitionist”. She tapered QE to zero as I predicted she would and began modest rate hikes.  It’s clear that the US labor force participation rate bottomed during her tenure as Fed chair.

Jay “Mr. Hyde” Powell is poised to take her policy to the next level, and launch aggressive QT (quantitative tightening) and rate hikes, and the first of at least eight rate hikes should come tomorrow!

Wage inflation is poised to surge as the participation rate breaks out to the upside. Unfortunately, because Janet moved so slowly with her rate hikes, this wage inflation is going to occur as the US business cycle rolls over, creating an inflationary recession.

What does this mean for gold investors? Well, I think a celebratory drum roll is what it means! That’s because nothing is more positive for gold stocks than a long period of stagflation.

Against a background of a major resurgence in Chindian citizen demand for gold with stagnant mine supply (except for Russian and Canadian mines), a true “bull era” for gold, silver, and companies involved in all facets of the metals business is born!

Double-click to enlarge this Dow chart. 

I chart sixty major US stocks, including all thirty Dow Jones Industrials Average component stocks. What I’m seeing is a major breakdown in the health of the market. The market is being carried by fewer and fewer stocks.

QT and rate hikes are sucking the life out of the market, and I’ve wondered aloud if Jay Powell’s words to stock market investors should be, “Sell in May, or get blown away by Jay!” The bottom line is that Mr. US Stock Market will have his first meeting with Mr. Hyde tomorrow, and I doubt it goes well for Mr. Market.

The meltdown in breadth doesn’t mean the US bull market in stocks is finished right now, but with the US bond bull market already slain by QT and rate hikes, it’s just a matter of time before Jay Powell pulls the US stock market’s life support plug. I’ve repeatedly told my subscribers that when investment decisions are made, forget about Trump, and focus on the Fed. Simply put, focus on the Fed, or wind up financially dead!

Investors need to think outside the stock and bond market box to prosper in an inflationary recession.

I wasn’t the earliest bitcoin investor, but I certainly was an aggressive bitcoin accumulator in the sub $500 zone. 

Bitcoin currently trades at about $8000.  After establishing a core position with an average price of about $200, I’m obviously thrilled to be sitting in “forty bagger” mode today. 

It’s important for all investors to understand that at about $20,000 a coin, bitcoin threatened to steal thunder from mainstream media’s darling Dow Jones Industrial Average. An enormous regulatory drive was promptly launched in conjunction with the launch of five-coin bitcoin futures. An expected price correction was created by the regulators. These regulators don’t help investors. They just help themselves by getting salaries to perform useless tasks. Regardless, markets tend to be “here to stay” once these pencil pushers get involved. The bottom line is that regulation lets institutional investors embrace the asset class, and that’s happening now.

Of great interest to me is the major double bottom that is forming now on the daily bitcoin chart. Importantly, there’s a huge volume spike on the first decline to my $8000 - $5000 buy zone. Volume is low on the second decline to that same $8000 - $5000 area. The volume pattern and the time frame of one to two months between the bottoms is classic “Edwards & Magee” technical action!

Tom “Mr. Bitcoin” Lee (Ex-head of US equities for JP Morgan) just issued a fresh bitcoin target of $90,000 by 2020. That’s possible, albeit aggressive. My intermediate term target of $34,000 is more moderate, more likely to happen, and still a superb gain from current price levels. 

In a stagflationary environment like the one beginning now, bitcoin and precious metals are mostly likely to earn the title,“assets of champions”.  

It’s very important for gold investors to stay focused on the US central bank, India, and China. Hallmarking and the new spot exchange in India are just two very positive long-term drivers of higher gold prices. A “Gold Board” will be launched soon. This board could ultimately have the power to determine the gold import duty rate and other key policy that affects the global gold price. 

My Chinese jewelry stocks that I cover are soaring higher as Chinese citizen gold buying is accelerating. Australian miners are also doing reasonably well.  Investors in most individual GDX and GDXJ component stocks and the “raw juniors” need the patience to wait for US wage inflation and more progress in the Chindian gold markets. Then they can sink their teeth into the glory of new highs across the board for these stocks. It’s going to happen, but realism and patience are required. The seeds of inflation are being sown now.  It’s not realistic to demand those seeds become jack in the beanstalk trees too quickly.

Double-click to enlarge this impressive daily gold chart.  

With “Jay Day” (FOMC decision day)tomorrow, gold is performing admirably in its post-Chinese New Year trading.  It’s making a beeline towards my $1300 Jay Day target zone. I expect statements from Jay Powell to set the stage for a move above the ultra-important $1370 area resistance zone. That should usher in substantial buying from Chinese citizens who have been quiet for the past few years.

I’ve predicted that wage inflation an upturn in US money velocity should arrive by the summer if Jay Powell sticks to his projected actions. 

Most gold investors are not focused enough on buying their favorite gold stocks in the current $21 buy zone for GDX. Instead, they are trying to guess when a big parabolic price rise will occur. That type of price action starts at the end of an inflationary period, not the beginning of it. I will say that I’m particularly excited to see substantial insider buying take place now at major gold mining companies. These company directors obviously see the current time as one for major gold stock accumulation. I’ll dare to suggest gold bugs around the world need to follow that lead!