(June 22, 2015 discussion) Another Fed meeting, another reiteration of dovish sentiment, and another push down the road on the expected timing of interest rate hikes. At some point, it gets a little silly. Gold has been somewhat capped and rangebound as the market digests 'expectations', yet here we are looking at a full year passing with no hikes in interest rates while the market has traded as though such action by the Fed was a given - not a question of 'if', but a question of 'when'. But more and more, its looking the question should be 'if'.
Meanwhile, the situation in Greece is once again escalating, with a large deadline looming on June 30th. Greece owes a payment of 1.5 billion euros to the IMF, and is completely unable to make the payment. They are desperately trying to renegotiate the terms of their debt, and remain in the Euro, but the divide suggest a 'Grexit' is back on the table. Time will tell, but at this point it amounts to a standoff, that will in all likelihood lead to an 11th hour deal, just like last time. But at some point, all involved countries are going to have to access whether or not there is any other viable outcome than Greece defaulting. Kicking the can does not a long term solution make. A Greek default needs to remain on all investors' radars, for what it could mean to international markets and to their personal portfolios.
The bond market has begun to behave in way not seen since the summer of 1987 - and any student of markets remembers what happened that fall. In fact, analysts are beginning to show up everywhere, speaking of bubbles and overvalued market conditions as they issue warnings of an imminent decline in equities markets. One analyst suggested that the recent spike in bond yields translates to a 20% decline in the S&P 500. This may be a summer where the old adage to 'sell (equities) in may and go away' might not be a bad idea. By all metrics, gold, on the other had, remains undervalued, on par with where it stood in 2007 in terms of relative valuations to equities.
And in an interesting turn of events, the state of Texas has passed legislation to open a state run depository so that they can 'repatriate' their gold holdings from the Fed depository in New York. They've also included explicit language that such gold held in state would be immune to a Federal confiscation. Gold confiscation is a common topic of conversation when clients call our offices, and we have devised strategies to insulate individual holdings against the risk that a majority of our clients employ, but this move by Texas is very interesting both in its unabashed public admission of such a possibility/risk, as well as the immediacy of the steps they are taking to protect their position.
33:45 Minutes, with Jonathan Kosares, Peter Grant and George Cooper.