Market insights and analysis

How dynamic, risk-managed investment solutions are performing in the current market environment

1st Quarter | 2021

Market insights and analysis

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Updates on how dynamic, risk-managed investment solutions are performing in the current market environment.

Gold prices moved sideways last week, closing at $1,732.30 per ounce. The 50-week moving average (blue line in the following chart) and 200-week moving average (red line) continue to trend up.

Interest rates have been rising as the bond market anticipates inflation. This has helped strengthen the U.S. dollar and led to much of the recent decline in gold prices. But how long will the Federal Reserve allow rates to continue to rise? And should we be concerned about where gold prices are going?

Matterhorn Asset Management doesn’t believe so, stating its case in a recent blog post:

“As the Biden administration adds another $1.9T of ‘stimulus’ debt to an already historically toxic debt pile, the U.S. will be sitting upon over $30T in government debt before Q1 of this year. … If rates were allowed to rise much higher to anywhere near the historically normal range of 5%, that would mean $1.5T in annual interest expense for Uncle Sam, which would equate to 50% of national revenues. … Rates won’t go too high for the simple reason that the Fed can’t afford or allow them to. …

“In order to pay the bills, the Fed MUST suppress rates going forward (especially on the 10Y Treasury, and possibly the 30Y) while simultaneously pursuing a deliberate policy of inflation and currency debasement to ‘inflate away’ some of Uncle Sam’s debt obligations.

“This setup … is in fact a perfect scenario for gold, namely 1) inflation running hot … and 2) artificially repressed yields and rates kept low. … The net result, of course, is a world of negative real rates, which is the most bullish backdrop for gold.”

Rick Andrews is president of Avant Capital Management.



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