The shuddering fall in US real yields that began last year has accelerated overnight on the back of the dovish US Federal Reserve (Fed) meeting. A cut is now fully priced in for next month. As we have repeated ad nauseam over the past year, this is a genuine structural shift in monetary policy. The past seven years of hawkish promises about higher rates and central bank balance sheet unwinding was, as gold investors warned, a blip in the trend of monetary policy that is loose, looser and looser still.
As the cash and bond market becomes nervous about the future purchasing power of US dollars, gold and silver prices look set to resume their secular bull run. When the Fed’s hawkishness and promise of balance sheet unwinding began, the gold price was around US$1800/oz and silver was around US$40/oz. Central bank balance sheets are larger now than then, and gold is under US$1400, while silver languishes around the US$15/oz level.
In my view, it is looking very much like a considerably better second half to this year is ahead for monetary metals enthusiasts. Jerome Powell’s words are especially welcome for holders of gold and silver mining equities, which offer geared exposure to the resumption of the long-cycle trend against paper and in favour of zero-risk weighted “true money”.