Federal Reserve Chairman Jerome Powell announced no change to its interest rate policy following the May meeting.
That’s not much of a surprise, but the real news is just two days before Powell announced no rate change, the Fed bought $34 billion worth of Treasurys in the midst of a failed auction.
See the Treasury news that shows the Fed’s System Open Market Account (SOMA) increased by $20 bil on May 5.
Then the Fed’s SOMA rose again by $14 mil on May 6 to account for more Treasury purchases.
The problem is our foreign creditors didn’t show up to the auction. There’s no appetite elsewhere for Treasuries yielding 4.5%. So, the Fed becomes the only buyer, soaking up $34 bil in Treasurys in just two days.
And today at 3:30 pm the Fed will release its balance sheet. Fed assets have been declining since 2022 and now stand at $6.7 trillion. The Fed has been slowing the pace of reductions over the past year, and now is preparing to increase its balance sheet once again representing QEIV.
Our trade partners have stepped away from buying Treasury debt. The only buyer left is the Fed. Significant artificial demand from the Fed could help push yields lower, but the USD is going to experience a significant loss of purchasing power. If our trade partners didn’t like Treasuries at 4.5% they are going to hate them at 2.5%.
That’s why this time is different. There are no buyers left for Treasury debt. Our trade partners are opting for Gold instead. Throughout history there are many examples of when a country abuses its world reserve currency status. The system persists for decades, but when trade partners opt out its game over for the USD. It never ends well for countries with endless debt, spending and artificially low rates. Gold will do as it always has and act as a barometer for the underlying health of a currency.
The later stages of a world currency in decline is marked by massive surge in inflation and a Gold price going ballistic. When the Fed steps in today to plug the hole in Treasury demand and officially begin perpetual QEIV the USD will have entered its final stage.
It’s a nightmare scenario for the dollar. God only knows how high Gold will soar.
Best,
Garrett Goggin, CFA, CMT
Chief Analyst and Founder, Golden Portfolio
P.S. Take a look to see how Warren Buffett himself is poised to take advantage of this unprecedented monetary scenario.