The Perils of Complacency
When the Washington noise gets loud enough, Rickards has to assess the effect it may have on markets. He’s been warning about these political dangers for some time, and last week the markets caught up with him.
Rickards believes we’ve reached peak political hysteria, and expects things to calm down from here. The controversy isn’t going away, but he doesn’t believe the intensity can last much longer.
All this will have consequences for markets. Tax cuts, tax reform and massive infrastructure spending will not happen this year. Obamacare repeal may happen in some form, but that is the least important part of the Trump agenda in terms of economic growth.
A government shutdown over spending priorities is a real possibility for October. The Fed is still on track to raise interest rates in June. Markets drew some relief from the appointment of a special counsel to handle the Russia investigations. Stocks could bounce back once the Washington noise level dies down.
But the most important development may be the one that didn’t make the news. On May 10, gold launched a decisive turnaround from its most recent decline. This kept intact the pattern Rickards has been writing about—higher highs, and higher lows as every retreat finds a footing higher than the one before, and each new high reaches higher ground.
This pattern began in December 2016 at an interim low of $1,128. Since then gold has hit new highs of $1,216 on January 17; $1,256 on February 24; and $1,289 on April 18.
Each time gold retreated from those highs, it found a new bottom at a higher price than the time before. The recent low was $1,218 on May 10. In this new spike, gold has rallied to $1,251 (as of last Friday).
If this pattern holds, the next stop is $1,300 or higher. A Fed rate hike on June 14 could be a catalyst for a move even higher, just as the last two rate hikes (December 14, 2016, and March 15, 2017) were turning points for gold.
No market moves up in a straight line, and gold won’t either. But what we’re seeing right now is very encouraging.