Source: Rudi Fronk and Jim Anthony for Streetwise Reports 03/23/2020
Seabridge founders Rudi Fronk and Jim Anthony provide an update on the Fed’s actions and the gold price.
Many times a day, we are asked what we think will be the impact on gold prices of the enormous money-printing by the Fed. We think the impact is much greater than you might imagine because it is in combination with huge fiscal stimulus. In a nutshell, we think the current path leads to a new all-time high in gold this year and a crisis of confidence in the dollar. It’s baked in the cake, in our view.
Please note, this is an opinion not investment advice.
Two points need to be made. First, most of the monetary stimulus to date is repo… money that must be returned in time certain and does not add to bank reserves. Repos unfreeze short-term liquidity but it’s the POMO…Permanent Open Market Operations or QE… that grows the balance sheet and bank reserves. There is much more QE to come, in our view, to keep mortgage rates down and bank balance sheets healthy (two Fed priorities). Repos have not satisfied the markets. To date, the Fed has announced $500 billion in new POMO Treasury purchases since COVID-19 of which more than half was used in the first few days. We expect new QE to total $4 trillion+ before the Fed is done.
Second, and most important, the fiscal stimulus is even greater and far more problematic than the monetary stimulus. Fiscal stimulus requires an enormous increase in an already huge deficit. If the Treasury seeks to borrow the extra $2 trillion or more that is sure to be authorized, the issuance would drive up Treasury yields which are already rising at the long end. The Fed will attempt to prevent this by purchasing the newly issued debt. The Fed is already funding about 70% of the current deficit (just follow the cusip numbers). So, QE this time around is not only going into financial markets like it did in 2009…a huge amount of it is going to flow through the Treasury and into the economy (payments to businesses and individuals, the real helicopter money), adding artificial demand at a time when the economy is producing less. This is very damaging to dollar confidence and highly inflationary.
We think the Fed and the Treasury have decided to sacrifice the dollar. We think they will be successful. Gold’s price will reflect this.
Written March 21, 2020.
This article is the collaboration of Rudi Fronk and Jim Anthony, cofounders of Seabridge Gold, and reflects the thinking that has helped make them successful gold investors. Rudi is the current Chairman and CEO of Seabridge and Jim is one of its largest shareholders.
Disclaimer: The authors are not registered or accredited as investment advisors. Information contained herein has been obtained from sources believed reliable but is not necessarily complete and accuracy is not guaranteed. Any securities mentioned on this site are not to be construed as investment or trading recommendations specifically for you. You must consult your own advisor for investment or trading advice. This article is for informational purposes only.
Sign up for our FREE newsletter at: www.streetwisereports.com/get-news
Disclosures:
1) Statements and opinions expressed are the opinions of Rudi Fronk and Jim Anthony and not of Streetwise Reports or its officers. The authors are wholly responsible for the validity of the statements. Streetwise Reports was not involved in any aspect of the content preparation. The authors were not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the authors to publish or syndicate this article. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
2) Rudi Fronk and Jim Anthony: we, or members of our immediate household or family, own shares of the following companies mentioned in this article: Seabridge Gold. We personally are, or members of our immediate household or family are, paid by the following companies mentioned in this article: Seabridge Gold.
3) Seabridge Gold is a billboard sponsor of Streetwise Reports. Click here for important disclosures about sponsor fees.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.