The Federal Reserve’s decision to lower interest rates by half a percentage point may prove to be a colossal mistake.
Some see it as a risky move, that could lead to one of the most painful bear markets of the century, while Fed Chairman Power seems to think the labour market is solid and inflation is under control.
According to the U.S. Bureau of Labor Statistics, over the last 12 months, the Consumer Price Index (for all items) increased 2.5%. In addition, prices are still 21.2% more expensive since the pandemic-induced recession began in February 2020.
On May 3rd, New York Federal Reserve Bank President John Williams stated that the 2% inflation target was critical. Powell took a big gamble with this 50bp cut while inflation is obviously NOT under control, and we all know how dependable those jobs numbers are (wink…wink).
Below is a chart that shows the reaction of the markets to Fed Pivots over the last 25 years;
Long-term buy and hold investors should be paying close attention to the charts, because as history proves, we could be at the brink of something big…and that “something” is not to the upside. Option traders, who know how to position themselves with bearish strategies and negative delta spreads, are most likely salivating and the trading opportunities that lay ahead.
There is no question that gold has broken out over the brim of a very well-developed Cup & Handle Pattern. Lower interest rates, a falling dollar, the threat of higher inflation, as well as economic and geopolitical uncertainty, all tend to be positive drivers for gold. Investors may also see the precious metals (both gold and silver) as a safe haven during falling markets and times of geopolitical stress. It appears Gold Traders are preparing for higher inflation and perhaps a crashing dollar.
My longer-term price target on Gold is $3000 an ounce.
Cup & Handle (GLD)
As a former Chairman of the Options Floor Trading Committee and member of the NY Commodity Exchange (Comex), I know for a fact, that silver is one of the most manipulated commodities in the world. The big “silver haters” have kept a lid on this precious metal for many years, but I think we are getting close to what could be an epic short squeeze. My long-term price target on silver is well over $50 per ounce, and I’m being conservative on that forecast.
Cup & Handle (SLV)
This blog was written by AJ Monte as a contributor on ZeroHedge. Read the original blog here.