via The Maven:
Faith in central banks, to be blunt, is ridiculous. But then again, so is the belief the US dollar (or any other fiat currency) has any chance to succeed over the long term when every single fiat currency ever has eventually failed.
Still, the price of gold is tied to how well the Fed sells the doomed idea that they’ve got everything under control, that they will somehow conjure a permanent and stable solution to an irrevocably broken math equation that does not figure out.
They don’t. And understanding this means being on the right side of a historically important trade before nearly anyone else. Gold is money, currency is worthless, and it’s only a matter of time before valuations of gold and the US dollar reflect this simple truth.
Crescat Capital’s First Quarter Review suggests now is a good time to be short equities and long gold.
I like the notion that Fed tightening cycles “coincide” with asset bubble burstings, but it’s important to note that hike cycles do not “cause” problems.
Fed policies (central bank policies in general) sow the seeds of their own destruction.
Gold primarily moves with faith in central banks, not inflation expectations. Note that gold fell from over $800 to $250 between 1980 and 2000 with inflation every step of the way.
Regardless of why there will be a downturn, it’s pretty clear the Fed will react to it in the usual way.
Thus, I wholeheartedly agree with Crescat’s thesis that gold is likely to be a winner.
ORIGINAL SOURCE: Fed Tightening Cycles Coincide With Bursting of Asset Bubbles: How to Play It by Mike Shedlock at The Maven on 5/15/18