Fed rate cut talk confirms Chinese currency and gold price reset

As I wrote Tuesday morning — before Fed chief Jerome Powell came out with his announcement of future rate cuts sending the Dow Jones industrial index up 500 points — the next move by the Fed was lower on rates.

Powell won’t admit this but I will. It has nothing to do with inflation, which is below 2% officially, nor unemployment, which is a decades low levels.

No, it has to do with the currency reset we are negotiating with China under the false rubric of tariffs.You don’t need specific tariffs if you make the currency more expensive everything China exports will cost more. Also with a yuan reset there will be a hit to global economic growth.

China will take a big hit as it will be 20% more expensive to buy products exported from there. The up side for them is they want the gold price to float higher and that’s were Powell and Co. come in.

In a dollar-dominated world $2,500 an ounce gold means the dollar is weak. So the Fed through its member banks such as JPMorgan, Goldman Sachs and Morgan Stanley, keep gold in a tight, artificial level. To give confidence to the world that the dollar is king.

China through its relatively new Shanghai gold exchange wants the suppression to end since it will need to draw on its large gold reserves to make up for lost economic activity due to the currency reset.

While I’m happy to see Powell understands the need to cut, I wish he would be upfront and honest as to why. Because nothing in the Fed’s dual mandate suggests a rate cut is needed.

But Powell and Co. thanks for confirming my story anyway.