In times of financial crisis, it’s important to remember this maxim: “There’s never just one cockroach”, counsels Brien Lundin, editor of Gold Newsletter.
Think way back to another time. Like two weeks ago.
Back then, the futures markets indicated a 68% chance that the Fed would hike rates 0.50% at their meeting on March 22nd. By the next week, the winds had shifted enough that there was a 60% chance that the Fed would only raise by 0.25%.
Fast-forward to now, and the script has completely flipped: The odds now favor no hike at all. That would be the pause that we’ve been predicting as an eventuality. But instead of months down the line, it’s going to happen either now or at their next meeting. Why?
Because things are breaking.
For months I’ve been warning that we were headed for a reckoning. The Fed and other central banks couldn’t force-feed the most severe interest rate hikes in over four decades without causing severe damage to a global financial system that had been built upon the shaky foundation of zeroed interest rates.
SPDR Gold Shares ETF (GLD)
I couldn’t tell you what was going to be the first domino to fall, although I suspected it would be the bond market, overseas real estate or the derivatives house of cards that Alan Greenspan warned me about. There were only two things we could be confident in:
1) Something would break, and...
2) We would want to own gold and silver when it did.
The last few days have checked off both of these boxes. Importantly, gold and silver are leaping higher again as the collapse of Silicon Valley Bank has sparked a banking crisis not just in the U.S., but across the world.
So, what now?
First off, understand that, like the first shots fired at Fort Sumter, the coming conflagration will spread to many fronts. This isn’t just about a bank that was too exposed to the risk of rising rates, or even a banking system similarly exposed.
It’s about an entire financial system and global economy, from bonds to banks to businesses and more, all reliant on ultra-low interest rates and ever-easier monetary policy. With sovereign debts now much larger than the economies that created them, the very idea of “normalizing” interest rates is passé. Higher rates can’t happen, because they can’t be tolerated.
So, the crisis that began with Silicon Valley Bank will spread to other sectors...and will force central banks to stop their rate hikes.
A pause alone will be a shot of monetary adrenaline for every asset class, but none as much as with gold and silver. That’s why smart money is flocking to precious metals at this moment, sending prices climbing. Follow the money.
Recommended Action: Buy gold.
